Do You Know That I Know That You Know?: Higher Order Beliefs in Survey Data

Olivier Coibion, Jane Ryngaert, Saten Kumar and Yuriy Gorodnichenko

No 280, 2019 Meeting Papers from Society for Economic Dynamics

Abstract: We implement a new survey of firms, focusing on their higher-order macroeconomic expectations. The survey provides a novel set of stylized facts regarding the relationship between first-order and higher-order expectations of economic agents, including how they adjust their beliefs in response to a variety of information treatments and how these adjustments affect their economic decisions. We show how these facts can be used to calibrate key parameters of noisy-information models with infinite regress as well as to test predictions made by this class of models. The survey also quantifies cognitive limits of agents in the form of level-k thinking. We find little evidence that this departure from infinite regress helps reconcile the data and theory.

Date: 2019
New Economics Papers: this item is included in nep-neu
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Working Paper: Do You Know That I Know That You Know...? Higher-Order Beliefs in Survey Data (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed019:280

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