The Formation of Price Forecasts in Experimental Markets

Arlington Williams

Journal of Money, Credit and Banking, 1987, vol. 19, issue 1, 1-18

Abstract: This study utilizes laboratory experimental methods to evaluate the empirical validity of: (1) "Muthian" rational expectations assumptions, (2) an adaptive expectations model, and (3) an extrapolative expectations model. Over 5 00 price forecasts from 146 participants in twelve experimental double-auction m arkets with a cash reward structure are analyzed. The forecasting objective is t hemean price over a sequence of trading periods governed by stationary market parameters. The price forecasts are found to be inconsistent with strict Muthian rational expectations and the extrapolative modelis not supported by the data. However, the forecasts generally support the adaptive expectations model. Copyright 1987 by Ohio State University Press.

Date: 1987
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Persistent link: https://EconPapers.repec.org/RePEc:mcb:jmoncb:v:19:y:1987:i:1:p:1-18

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