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

Hans-Martin von Gaudecker, Tilman Drerup and Benjamin Enke

VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy from Verein für Socialpolitik / German Economic Association

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 ade- quate 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: 2015
New Economics Papers: this item is included in nep-ecm
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Related works:
Working Paper: Measurement Error in Subjective Expectations and the Empirical Content of Economic Models (2014)
Working Paper: Measurement Error in Subjective Expectation and the Empirical Content of Economic Models (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc15:112871

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