Models, Inattention and Expectation Updates

Vasiliki Skreta, Raffaella Giacomini () and Turén, Javier
Authors registered in the RePEc Author Service: Javier Turen

No 11004, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We formulate a theory of expectation updating that fits the dynamics of accuracy and disagreement in a new survey dataset where agents can update at any time while observing each other's expectations. Agents use heterogeneous models and can be inattentive but, when updating, they follow Bayes' rule and assign homogeneous weights to public information. Our empirical findings suggest that agents do not herd and, despite disagreement, they place high faith in their models, whereas during a crisis they lose this faith and undergo a paradigm shift. This simple, "micro-founded" theory could enhance the explanatory power of macroeconomic and finance models.

Keywords: Bayesian learning; Disagreement; Expectation formation; Forecast accuracy; Herding; Heterogeneous agents; Information rigidities (search for similar items in EconPapers)
JEL-codes: D80 D83 E27 E37 (search for similar items in EconPapers)
Date: 2015-12
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Working Paper: Models, inattention and expectation updates (2016)
Working Paper: Models, Inattention and Expectation Updates (2015)
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