Do You Know that I Know that You Know...? Higher-Order Beliefs in Survey Data
Saten Kumar and
Department of Economics, Working Paper Series from Department of Economics, Institute for Business and Economic Research, UC Berkeley
We implement a new survey of firms, focusing on their higher-order macroeconomic expectations. The survey provides a novel set of stylized facts regarding the relationship between first-order and higher-order expectations of economic agents, including how they adjust their beliefs in response to a variety of information treatments. We show how these facts can be used to calibrate key parameters of noisy-information models with infinite regress as well as to test predictions made by this class of models. We also consider a range of extensions to the basic noisy-information model that can potentially better reconcile theory and empirics. Although some extensions like level-k thinking are unsuccessful, incorporating heterogeneous long-run priors can address the empirical shortcomings of the basic noisy-information model.
Keywords: Economics (search for similar items in EconPapers)
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Working Paper: Do You Know That I Know That You Know?: Higher Order Beliefs in Survey Data (2019)
Working Paper: Do You Know That I Know That You Know...? Higher-Order Beliefs in Survey Data (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:cdl:econwp:qt5cd1r3bd
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