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Expectation formation in finance and macroeconomics: A review of new experimental evidence

Te Bao, Cars Hommes () and Jiaoying Pei ()

Journal of Behavioral and Experimental Finance, 2021, vol. 32, issue C

Abstract: This paper reviews the recent development and new findings of the literature on learning-to-forecast experiments (LtFEs). In general, the stylized finding in the typical LtFEs, namely the rapid convergence to the rational expectations equilibrium in negative feedback markets and persistent bubbles and crashes in positive feedback markets, is a robust result against several deviations from the baseline design (e.g., number of subjects in each market, price prediction versus quantity decision, short term versus long term predictions, predicting price or returns). Recent studies also find a high level of consistency between findings from forecasting data from the laboratory and the field, and forecasting accuracy crucially depends on the complexity of the task.

Keywords: Learning to forecast experiment; Experimental finance; Rational expectations; Bubbles and crashes; Behavioral finance (search for similar items in EconPapers)
JEL-codes: C10 D84 E52 G12 G17 G40 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.jbef.2021.100591

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Journal of Behavioral and Experimental Finance is currently edited by Michael Dowling and Jürgen Huber

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