Double overreaction in beauty contests with information acquisition: Theory and experiment

Romain Baeriswyl, Kene Boun My () and Camille Cornand

Journal of Monetary Economics, 2021, vol. 118, issue C, 432-445

Abstract: Central banks’ disclosures, such as forward guidance, have a weaker effect on the economy in reality than that predicted in theoretical models. In a beauty contest with information acquisition, we show that strategic complementarities give rise to a double overreaction to public disclosures by increasing agents' equilibrium level of attention, which, in turn, increases the weight assigned to the disclosures in agents’ equilibrium action. A laboratory experiment provides evidence that the effect of strategic complementarities on participants’ realised level of attention and realised action is qualitatively consistent with the theoretical predictions.

Keywords: Beauty contest; Information acquisition; Overreaction; Central bank communication (search for similar items in EconPapers)
JEL-codes: D82 E52 E58 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Double overreaction in beauty-contests with information acquisition: theory and experiment (2021)
Working Paper: Double overreaction in beauty contests with information acquisition: theory and experiment (2020)
Working Paper: Double overreaction in beauty-contests with information acquisition: theory and experiment (2019)
Working Paper: Double overreaction in beauty-contests with information acquisition: theory and experiment (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:118:y:2021:i:c:p:432-445

DOI: 10.1016/j.jmoneco.2020.12.004

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