A test of the rational expectations hypothesis using data from a natural experiment

Conte, Anna, Moffatt, Peter G., Botti, Fabrizio, DiCagno, Daniela T. and D'Ippoliti, Carlo (2012) A test of the rational expectations hypothesis using data from a natural experiment. Applied Economics, 44 (35). pp. 4661-4678. ISSN 0003-6846

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Abstract

Data on contestants’ choices in Italian Game Show Affari Tuoi are analysed in a way that separates the effect of risk attitude (preferences) from that of beliefs concerning the amount of money that will be offered to contestants in future rounds. This separate identification is possible by virtue of the fact that, at a certain stage of the game, beliefs are not relevant, and risk attitude is the sole determinant of choice. The rational expectations hypothesis is tested by comparing the estimated belief function with the ‘true’ offer function which is estimated extraneously using data on offers actually made to contestants. We find a close correspondence, leading us to accept the rational expectations hypothesis. The importance of belief formation is confirmed by the estimation of a mixture model which establishes that the vast majority of contestants are forward looking as opposed to myopic.

Item Type:	Article
Faculty \ School:	Faculty of Social Sciences > School of Economics
UEA Research Groups:	Faculty of Social Sciences > Research Groups > Behavioural Economics Faculty of Social Sciences > Research Groups > Applied Econometrics And Finance Faculty of Social Sciences > Research Centres > Centre for Behavioural and Experimental Social Sciences
Depositing User:	Julie Frith
Date Deposited:	09 Feb 2012 16:30
Last Modified:	08 Aug 2023 16:30
URI:	https://ueaeprints.uea.ac.uk/id/eprint/37010
DOI:	10.1080/00036846.2011.597734

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