The effect of time-varying fundamentals in learning-to-forecast experiments

Simone Alfarano, Eva Camacho-Cuena, Annarita Colasante and Alba Ruiz-Buforn
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Eva Camacho-Cuena: University Jaume I
Annarita Colasante: Unitelma Sapienza - University of Rome

Journal of Economic Interaction and Coordination, 2024, vol. 19, issue 4, No 4, 619-647

Abstract: Abstract Inspired by macroeconomic scenarios, we aim to experimentally investigate the evolution of short- and long-run expectations under different specifications of the fundamentals. We collect individual predictions for future prices in a series of Learning to Forecast Experiments with a time-varying fundamental value. In particular, we observe how expectations evolve in markets where the fundamental value follows either a V-shaped or an inverse V-shaped pattern. These conditions are compared with markets characterized by a constant and a slightly linear increasing fundamental value. We assess whether minor but systematic variations in the fundamentals affect individual short- and long-run expectations by considering positive and negative feedback-expectation systems. Compared to a setting with constant fundamentals, the slowly varying fundamentals have a limited impact on how subjects form their expectations in positive feedback markets, whereas in negative feedback markets we observe notable changes.

Keywords: Long-run expectations; Coordination; Convergence; Heterogeneous expectations; Expectations feedback; Experimental economics (search for similar items in EconPapers)
JEL-codes: C91 D03 G12 (search for similar items in EconPapers)
Date: 2024
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Working Paper: The effect of time-varying fundamentals in Learning-to-Forecast Experiments (2022)
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DOI: 10.1007/s11403-023-00397-6

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