Signal extraction: experimental evidence

Te Bao and John Duffy

Theory and Decision, 2021, vol. 90, issue 2, No 3, 219-232

Abstract: Abstract We report on an experiment examining whether individuals can solve a simple signal extraction problem of the type found in models with imperfect information. In one treatment, subjects must form point predictions based on observing both public and private signals, while in another they receive the same information but must decide on the weight to attach to each signal, which then determines their point prediction. We find that, at the aggregate level, signal extraction provides a good characterization of subjects’ behavior in both treatments, but at the individual level, there is considerable heterogeneity in subjects’ ability to perform signal extraction.

Keywords: Signal extraction model; Belief updating; Heterogeneous expectations; Bayesian learning (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (4)

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DOI: 10.1007/s11238-020-09785-x

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