Measurement Error in Subjective Expectation and the Empirical Content of Economic Models

Tilman Drerup, Benjamin Enke and Hans-Martin von Gaudecker

No 201414, MEA discussion paper series from Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy

Abstract: While stock market expectations are among the most important primitives of portfolio choice models, their measurement has proved challenging for some respondents. We argue that the magnitude of measurement error in subjective expectations can be used as an indicator of the degree to which economic models of portfolio choice provide an adequate representation of individual decision processes. In order to explore this conjecture empirically, we estimate a semiparametric double index model on a dataset specifically collected for this purpose. Stock market participation reacts strongly to changes in model parameters for respondents at the lower end of the measurement error distribution; these effects are much less pronounced for individuals at the upper end. Our findings indicate that measurement error in subjective expectations provides useful information to uncover heterogeneity in choice behavior.

JEL-codes: C35 C51 G11 (search for similar items in EconPapers)
Date: 2014-10-02
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://mea.mpisoc.mpg.de/uploads/user_mea_discussionpapers/1462_14-2014.pdf (application/pdf)

Related works:
Working Paper: Measurement Error in Subjective Expectations and the Empirical Content of Economic Models (2015)
Working Paper: Measurement Error in Subjective Expectations and the Empirical Content of Economic Models (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mea:meawpa:201414

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in MEA discussion paper series from Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy, Amalienstraße 33, 80799 München, Germany.
Bibliographic data for series maintained by Henning Frankenberger ().