non transitive choice event splitting effects or framing effects recent studies have examined possible causes of the robust empirical failure of the transitivity axiom of expected utility theory by pitting regret aversion against alternative explanations such as event splitting effects these tests show that cycles replicate when the latter are controlled but are sensitive to changes in problem representation the control for event splitting effects however does not rule out their contribution to cyclical choices in some circumstances an experiment is reported which investigates this possibility cyclical choices are observed that cannot be due to event splitting effects but appear attributable to within event and between act evaluations of decision problems plus framing effects

models of inflation expectations formation a comparison of household and economist forecasts the recent appreciation of the critical role played by expectations of inflation in the behavior of macromodels has stimulated empirical studies of the formation of expectations by different groups time series survey data on expectations of inflation exist now for economists households and businesses these data have been used as independent variables in explaining wage behavior gordon 16 turnovsky and wachter 34 and de menil and bhatta 5 prices turnovsky and wachter 34 and wachtel 36 interest rates gibson 14 hendershott and van horne 19 pearce 30 and mishkin 27 and consumption wachtel 36 generally with a significant improvement in explanatory power they have also been used as dependent variables in attempts to determine how expectations are formed by gordon 15 mullineaux 28 jacobs and jones 20 and figlewski and wachtel 9 for the economist survey van duyne 35 for the household survey and leonard 23 and de leeuw and mckelvey 4 for businesses given their different levels of knowlege of economics and perspectives one might expect that the models used by the different groups to forecast inflation would

measuring inflation expectations a survey data approach expectations of inflation can be important determinants of actual inflation because they influence the process of wage bargaining price setting speculative buying and financial investing decisions englander and stone 1989 a central bank given its primary objective of price stability therefore takes a natural interest in inflationary expectations of economic agents in fact as illustrated by the theoretical work of e g kydland and prescott 1977 and barro and gordon 1983 inflationary expectations of the public are an important factor determining the success of the central bank in achieving its policy goal measures of inflation expectations can be used for monetary policy purposes for example as information variables in the sense defiined by friedman 1993 or as intermediate targets in the so called direct inflation targeting strategy svensson 1996 fuhrer 1997

are preferences monotonic testing some predictions of regret theory in this paper the authors demonstrate that the assumption of regret aversion which has been invoked in regret theory to explain several well documented violations of expected utility theory also implies the existence of strict preferences between some stochastically equivalent actions and implies certain systematic violations of monotonicity the authors report an experimental test of these predictions they find that while choices between stochastically equivalent actions are entirely consistent with expected utility theory there is clear evidence of the monotonicity violations predicted by regret theory copyright 1992 by the london school of economics and political science

what went wrong the erosion of relative earnings and employment among young black men in the 1980s this paper shows a widening in black white earnings and employment gaps among young men from the mid 1970s through the 1980s earnings gaps increased most among college graduates and in the midwest while gaps in employment population rates grew most among dropouts we attribute the differential widening to shifts in demand for subgroups due to shifting industry and regional employment the falling real minimum wage and deunionization the growing supply of black to white workers that was marked among college graduates and to increased crime among dropouts the different factors affecting subgroups highlight the economic diversity of black americans

affirmative action and the racial wage gap among the many disturbing changes in the structure of wages in recent years the stagnation in the male racial wage gap may be the most disheartening race remains america s oldest and most persistent cause of social and economic disparity but many of us had been encouraged by the steady and significant economic progress since the second world war the recent stagnation challenges that optimism in this paper i attempt to identify the reasons why the wage stagnation took place many americans particularly those in the media and political arena believe they already know the reason according to them this stagnation is the predictable consequence of the affirmative action policies associated with the reagan administration one reason why many believe that the reagan era deserves principal responsibility for the racial stagnation is the belief that equal employment opportunity commission eeoc resources were gutted during this period eeoc inflation adjusted budgets grew almost 15 percent per year during the 1970 s while there was some slowdown in the last half of the decade constantdollar eeoc budgets expanded by 7 2 percent per year during the carter administration and almost 1 400 budgeted positions were added to the eeoc a growth of 50 percent between 1976 and 1980 there is no question that the reagan era witnessed an abrupt end to the growth in resources that would have taken place eeoc constant dollar budgets actually fell during this period and the number of positions declined by almost one thousand and as eeoc resources and personnel fell during the 1980 s so did the measurable outputs the sharp break in the 1980 s was not so much in the aggregate level of activity but in its composition and the resources available per case spurred by the passage of the age discrimination act in 1979 age came into its own during this decade starting with only 14 cases in the year after passage of the act the number of age cases rose at an astonishing pace to over 30 000 by 1992 even without this explosion in age related charges the significance of race was declining while the number of race charges increased by 10 percent after 1980 sex charges were expanding by 40 percent by 1992 only 40 percent of all cases involved race issues compared to 85 percent of all charges in 1970 and 61 percent in 1980 the declining importance of race in the eeoc s agenda reflects a more general dilution of race as the core civil rights labormarket concern since 1965 the road to equal rights has become very crowded the quest for racial justice was the clear moral force behind the civil rights act with women added in an unsuccessful attempt to scuttle the legislation subsequently hispanics have begun to rival blacks in their political clout and protected minority group status was extended to men over 40 those with a disability and gays the end result is that more than three quarters of today s labor force enjoy protected minority group status blacks are now a minority within the protected minority class which itself represents the majority

racial discrimination in the labor market theory and empirics we review theories of race discrimination in the labor market taste based models can generate wage and unemployment duration differentials when combined with either random or directed search even when strong prejudice is not widespread but no existing model explains the unemployment rate differential models of statistical discrimination based on differential observability of productivity across races can explain the pattern and magnitudes of wage differentials but do not address employment and unemployment at their current state of development models of statistical discrimination based on rational stereotypes have little empirical content it is plausible that models combining elements of the search models with statistical discrimination could fit the data we suggest possible avenues to be pursued and comment briefly on the implication of existing theory for public policy jel j15 j31 j64 j71

emotional bidders an analytical and experimental examination of consumers behavior in a priceline like reverse auction e commerce has proved to be fertile ground for new business models which may be patented for up to 20 years and have potentially far reaching impact on the e commerce landscape one such electronic market is the reverse auction model popularized by priceline com there is still uncertainty surrounding the survival of such new electronic markets currently available on the internet understanding user behavior is necessary for better assessment of these sites survival this paper adds to economic analysis a formal representation of the emotions evoked by the auction process specifically the excitement of winning if a bid is accepted and the frustration of losing if it is not we generate and empirically test a number of insights related to 1 the impact of expected excitement at winning and frustration at losing on bids across consumers and biddings scenarios and 2 the dynamic nature of the bidding behavior that is how winning and losing in previous bids influence their future bidding behavior

the accuracy of oecd forecasts of the international economy balance of payments abstract this paper examines the accuracy of forecasts of the international economy made by the oecd our large data set comprising some 5500 pairs of forecasts and outcomes includes one two and three step ahead semi annual forecasts of eight components of the balance of payments for the g7 economies over a 20 year period there is considerable variation in the accuracy of these forecasts although they are generally superior to naive and time series predictions there are some marked exceptions particularly as the forecast horizon lengthens forecasting error is overwhelmingly non systematic however our study reveals numerous instances of forecasts which could be improved by a simple linear correction or by incorporating information contained in known recent forecast errors the oecd s forecasts of services and private transfers and official transfers are cause for particular concern the accuracy of these forecasts is low often below that of corresponding time series forecasts and rationality tests indicate that they are most prone to inefficiency and inconsistency

a time series analysis of representative agent models of consumption andleisure choice under uncertainty this paper investigates empirically a model of aggregate consumption and leisure decisions in which utility from goods and leisure is nontime separable the nonseparability of preferences accommodates intertemporal substitution or complementarity of leisure and thereby affects the comovements in aggregate compensation and hours worked these cross relations are examined empirically using postwar monthly u s data on quantities real wages and the real return on the one month treasury bill the estimated values of the parameters governing preferences differ significantly from the values assumed in several studies of real business models several possible explanations of these discrepancies are discussed

the informational content of implied volatility implied volatility is widely believed to be informationally superior to historical volatility because it is the markets forecast of future volatility but for s p 100 index options the most actively traded contract in the united states we find implied volatility in aggregate and across subsamples separated by maturity and strike price implied volatility has virtually no correlation with future volatility and it does not incorporate the information contained in recent observed volatility article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

let the good times roll the economic expectations of u s voters increasingly the concept of expectation is utilized to explain political choices with voters being depicted as prospective rather than retrospective in their orientations this paper tests competing theories of economic expectations forecasts with data from consumer surveys 1960 91 forecasts of inflation confirm the hypothesis of adaptive expectations but forecasts of general economic conditions do not nor do those forecasts conform to rational expectations instead voter forecasts of economic conditions are prone to a significant asymmetry while good economic times tend to foster optimism in an adaptive fashion bad times do not similarly feed pessimism instead they trigger a reverse forecast we explore this remarkable behavior in the light of psychological economics

accuracy and efficiency in the u s department of energy s short term supply forecasts one step ahead forecasts of quarterly crude oil natural gas electricity and coal supplies are evaluated under two general approaches accuracy based measures and classification or directional based measures results suggest the u s department of energy doe supply forecasts for u s domestic energy products are generally more accurate than a naive alternative there is only limited evidence of bias and inefficiency in the forecasts although there is some evidence of error repetition directional forecasts for supply changes are statistically better than random but they generally do not outperform a naive forecast

inflation expectations in turkey learning to be rational turkey implemented an ambitious restructuring of the economy in the past several years including the adoption of inflation targeting along with a floating exchange rate regime inflation came down from almost triple digits to single digits between 2001 and 2005 this particular episode of the turkish economy sets a genuine case study for investigating the possible changes in the behaviour of inflation expectations upon a regime shift accordingly this study analyses inflation expectations in turkey focusing especially on the post 2001 transition phase we first conduct classical tests of unbiasedness and efficiency using aggregate survey data between august 2001 and october 2007 to get a statistical benchmark for rationality we find that classical tests reject full rationality hypothesis for all series except next month s consumer price index cpi inflation expectations then we carry out time varying parameter tvp estimates based on a kalman filter to see how the coefficients in the classical tes

the pricing of forward contracts for foreign exchange this paper investigates the nature of observed deviations from the unbiased expectations hypothesis in the forward foreign exchange market if these deviations are due to risk premia then the same premia should be observed in nominal bonds denominated in different currencies this condition imposes testable restrictions on the parameters of a multivariate regression model the empirical results are consistent with a world in which time varying risk premia cause the observed deviations from unbiased expectations

inflation forecast errors and time variation in term premia the expectations theory of the term strueture is well known to give wrong signals as to the future course of long term interest rates one explanation involves rational time varying term premia however the anomaly may also be due to inflation forecast errors we study survey forecasts of inflation it seems that the respondents forecasts are insufficiently adaptive interest rates reflect expectations similar to the inflation forecasts as a result past survey forecast errors reliably predict premia on u s government bonds

survey measures of expected u s inflation of real interest rates and cash flows for decisions concerning investment expenditures international capital flows and exchange rate movements hinge in large part on expected real yield differentials across countries the federal reserve needs reliable measures of expected inflation to formulate and gauge the thrust of monetary policy in fact inflation expectations have become more important to the fed given the diminished stability of the link between the monetary aggregates and gdp expenditures since the early 1980s and the greater role which has been thrust upon expected real short term interest rates in the implementation of federal reserve policy the issue of rationality of inflation expectations that is the extent to which agents form expectations without making systematic mistakes in their beliefs about what inflation will be is important if inflation expectations are formed rationally labor and financial markets will strongly tend to neutralize the potential redistributive effects of inflation over time financial capital will flow efficiently within and across national borders moreover some of the stronger claims of new classical macroeconomics like the claim that only unexpected monetary policy actions will

unequal pay or unequal employment a cross country analysis of gender gaps we analyze gender wage gaps correcting for sample selection induced by nonemployment we recover wages for the nonemployed using alternative imputation techniques simply requiring assumptions on the position of imputed wages with respect to the median we obtain higher median wage gaps on imputed rather than actual wage distributions for several oecd countries however this difference is small in the united states the united kingdom and most central and northern eu countries and becomes sizable in southern eu countries where gender employment gaps are high selection correction explains nearly half of the observed negative correlation between wage and employment gaps

forecasting inflation using interest rate and time series models some international evidence it has been suggested that inflation forecasts derived from short term interest rates are as accurate as time series forecasts previous analyses of this notion have focused on u s data providing mixed results in this article the authors extend previous work by testing the hypothesis using data taken from the united states and five other countries using monthly eurocurrency rates and the consumer price index for the period 1967 86 their results indicate that time series forecasts of inflation have equal or lower forecast errors and have unbiased predictions more often than the interest rate based forecasts copyright 1990 by the university of chicago

simple foreign exchange market efficiency revisited abstract we present empirical evidence supporting the conjecture that rejections of the simple foreign exchange market efficiency hypothesis could result from the use of statistical tests that while asymptotically valid may have poor finite sample properties

testing the rate of preference reversal in personal and social decision making classic preference reversal where choice and valuation procedures generate inconsistent preference orderings has rarely been tested in hypothetical health care treatment scenarios two studies the first non incentivised and the second incentivised are reported in this article in both studies respondents are asked to make decisions that affect themselves a personal decision making frame and those for whom they are responsible a social decision making frame the results show non negligible and systematic rates of preference reversal in both frames although these rates are slightly but non significantly lower in the incentivised condition moreover in both studies the rate of predicted preference reversal was somewhat higher in the social than in the personal decision making frame a finding that is explained by greater risk aversion when choosing treatment options for others than when choosing treatments for oneself

male white black wage gaps 1979 1994 a distributional analysis 1 introductionnumerous studies show that during the 1980s the mean white black wage gap among new entrant 0 10 years of potential experience males expanded 1 juhn murphy and pierce 1991 jmp attribute the mean gap s expansion to a widening of the overall u s wage distribution caused by a host of economy wide race neutral changes that led to labor demand shifts toward better educated and better skilled workers regardless of race because african americans tend to be at lower levels of the overall skill distribution the shifts adversely impacted african american men more than white men leading to an expansion in the mean wage gap to arrive at this conclusion jmp decompose the expansion in the mean new entrant wage gap into four components the first two components measure the wage gap s increase because of a widening in observable racial differences in measured characteristics and their prices for example educational attainment and the returns to education the third component captures the contribution of growing racial discrimination and widening differences in unmeasured skills to the wage gap s expansion this term s contribution is measured by the drop in the mean percentile rank of blacks in the white residual wage distribution the fourth component identifies the role of increases in the prices of unmeasured skills and is measured by the increase in the variance of the white residual wage distribution when applied to the march annual demographic files of the current population survey jmp find that from 1979 to 1987 increases in the price of unmeasured skills explain all of the new entrant mean wage gap s expansion indicating that factors that adversely impacted less skilled workers regardless of race are the primary cause of the wage gap s expansion in related work reardon 1997 uses a national sample of white and african american men from the 1980 and 1990 decennial censuses and shows that the mean racial wage gap s expansion is caused by increased variance in the distribution of residual wages generated by labor demand shifts toward high skilled whites and away from medium skilled whites and high skilled african american men the wage gap expands because high skilled african american men earn wages that are similar to those of whites in the middle and upper third of their wage distribution the labor demand shifts led to a stretching or increased variance in the wage distribution that favored high skilled whites relative to high skilled african americans and medium skilled whites this paper makes several contributions to the literature on racial wage gaps and the technical literature on wage decompositions first i examine whether jmp s 1991 results hold up when the analysis is disaggregated by experience and educational attainment this is an important extension for two reasons bound and freeman 1992 rodgers 1997a and others have found that the racial wage gap among high school graduates and particularly among college graduates expanded significantly after the late 1970s over the same time period the variance of wages within these educational categories increased second it is important to determine the extent to which racial inequality that was generated while a cohort was a new entrant persists as it ages the paper s technical innovation is the development of a distribution or skill specific decomposition that identifies whether the stretching of the white wage distribution uniformly contributes to an expansion in racial inequality at all skill levels or quantiles of the wage distribution or whether the contribution of the wage distribution s stretching is specific to a skill level for example does the increase in the price of unmeasured skills explain a greater portion of the increase in the racial wage gap between high skilled african americans and whites than it does between medium skilled african americans and whites

rational expectations uncertainty and cyclical activity in the british office market this study presents an econometric investigation of office building development in great britain the results show that the cyclical activity in office development measured by the changes in the office building output series compiled by the department of the environment is explained by the changes in hillier parker real office rents and changes in the volume of output in services there is also strong evidence that uncertainty originating in the volatility of rents exerted a negative influence on the rate of office development in the 1990s the study advances further the existing econometric treatment of office building development by undertaking direct tests of rationality and shows that the estimated model produces forecasts which are characterised by rational expectations it is established that information contained in the past history of office building output and variables which are considered to explain its cyclical pattern is efficiently and consistently incorporated the model also suggests

gender wage inequality during sri lanka s post reform growth a distributional analysis abstract this paper investigates gender wage inequality in sri lanka during 1992 2014 a period of robust economic growth following pro market reforms the gap in mean wages between men and women decreased steadily over this period unconditional quantile regression reveals the decline in gender wage inequality was driven by the upper half of the distribution and was due to improvements in women s observable human capital yet the pay structure became more unequal indicating widening gender gaps in the returns to labor market characteristics and in unobservable determinants of wages the gender gap in pay structure widened disproportionately in the lower half of the distribution coinciding with falling absolute and relative returns to women in manufacturing industries and production occupations facing greater international competition the study also demonstrates selection bias underestimates the gender wage gap and overestimates the gains in equality over time factors that hinder gender equality in the labor market are discussed along with policy implications

data revisions and the expenditure components of gdp the constant price components of the expenditure estimate of gdp for the united kingdom undergo an extensive process of revision as new information comes to light this study is concerned with three central themes the authors assess whether the preliminary vintages efficiently incorporate information available at the time of their compilation whether there is any evidence for the nonstationarity of data revisions and how to construct constant price time series when there are several changes of base copyright 1991 by royal economic society

experimental economics hard science or wasteful tinkering i take it that in raising the question what have we learned from experimental economics under the broader umbrella of controversy the point is not to solicit a catalogue of experimental findings but rather to signal the more pointed question are we learning anything at all or at least much that is very useful form experimentation in economics as a practising experimentalist i am convinced that experiments do have the potential to make a significant contribution to knowledge in economics this abstract was borrowed from another version of this item

a study of economists consensus forecasts this study examines the ability of economists to forecast ten major economic series the data for this study were provided by j a livingston of the philadelphia inquirer who since 1947 has collected forecasts for the upcoming 6 and 12 months the results reveal that in general for the period from 1947 through 1978 the economists in livingston s sample did not produce efficient forecasts and were not able to outperform simple statistical models it should be noted however that a substantial and consistent improvement in forecasting performance by economists in livingston s sample did occur over this same period these results contain important information for managers who use macro economic consensus forecasts

another look at the rationality of the livingston price expectations data 1990 another look at the rationality of the livingston price expectations data applied economics vol 22 no 4 pp 477 485

the employment of black men trends in wages and employment of black men are contradictory wages are rising and employment is falling the article first describes employment trends using data from the five decennial censuses 1940 80 noting that education is becoming a more important determinant of participation next it is shown that ratios of average wages have not been severely biased by falling participation of those who would earn the least if they worked the final question asks whether falling participation of black men results from deteriorating job opportunities or from falling labor supply falling supply appears to dominate

market rationality tests based on cross equation restrictions abstract the information used by researchers in cross equation tests of rational expectations may be a small subset of the information available to the market such tests produce consistent estimates but have low power we develop a mechanism for dealing with this problem and use the procedure to perform cross equation tests on predictions from the football betting market the tests fail to reject rationality we provide evidence that market predictions from betting markets are not formed rationally it appears therefore that cross equation tests have low power even if the information sets used by the researcher and the market are approximately the same

a distributional analysis of the gender wage gap in bangladesh this article empirically investigates the gender wage gap in bangladesh during the period 2005 2009 applying unconditional quantile regression models the article demonstrates that women are paid less than men throughout the wage distribution and the gap is higher at the lower end of the distribution discrimination against women is the primary determinant of the wage gap the article also demonstrates that the observed gender wage gap is likely to be underestimated if we ignore selection in full time employment a number of policy implications are discussed

regret theory a bold alternative to the alternatives in their famous 1982 paper in this journal loomes and sugden introduced regret theory now more than 30 years later the case for the historical importance of this contribution can be made

testing the rationality of state revenue forecasts recent revenue shortfalls in several states focus attention on the question of whether states do a good job of forecasting revenues in modem economics forecasts are eval uated on the basis of whether or not they are rational do the forecasts optimally incorporate all available information this paper develops a method for testing the rationality of state revenue forecasts and applies it to the analysis of data from new jersey massachusetts and maryland one of our main findings is that in all three states the forecasts of own revenues are systematically biased downward tn 1985 the 50 states raised 349 billion in revenues from their own sources and received 84 billion in grants from the federal government u s bureau of the census 1987 p 266 state governments are clearly important players in the u s system of public finance and the efficiency with which they conduct their financial affairs has an important impact on consumer welfare one important determinant of a state s ability to con duct reasonable fiscal policies is the quality of its revenue forecasts sensible deliberations about ex penditures cannot be made in the absence of good forecasts indeed in the presence of con stitutional or statutory provisions for balanced budgets unanticipated changes in revenues can wreak havoc not only on proposals that are sched uled for funding but on plans that have already been put into effect as well in recent months two powerful governors michael dukakis of massachusetts and mario cuomo of new york have suffered major politi cal embarrassments because actual revenues fell substantially short of the predictions in their re spective states such episodes focus attention on the question of whether states do a good job of forecasting revenues in modem economics fore casts are evaluated on the basis of whether or not they are rational do the forecasts optimally incorporate all information that is available at the time they are made although there is a large literature on state revenue forecasting methods that literature focuses mostly on state budgetary institutions forecasts themselves are evaluated only in an informal fashion 1 although the theory and econometric methods of rational expectations have been used to evaluate forecasts made by households and businesses 2 these powerful tools have not been applied to state government fore casts this paper applies these methods to the problem of state revenue forecasting and as an example uses them to analyze data from new jersey massachusetts and maryland the results cast light not only on the question of rationality per se but on issues such as the impact of political factors on forecasts section ii presents the conceptual framework for testing rational expectations the relevant in stitutional issues and data are described in section iii the results are discussed in section iv we find that in all three states forecasts of own rev enues are systematically biased downward section v concludes with a summary

wages and participation during the last 25 years annual hours worked by prime aged men fell by the equivalent of six 40 hour workweeks the reduction was more pronounced among those younger than among mid age workers among black men than among white men and among those with less schooling thus hours worked not only fell but showed increased dispersion increases that paralleled the growth in wage dispersion that has become so familiar to students of trends in wages the argument advanced here is that the correspondence is not coincidental the changes in hours worked are simply the labor supply responses that follow the changes in the structure of wages

space time patterns of entrepreneurial expectations and performance nijkamp p rouwendal j and van der ede m 1993 space time patterns of entrepreneurial expectations and performance reg studies 27 1 11 economic research in the past decade has paid much attention to the motives of entrepreneurial behaviour in a neo schumpeterian spirit entrepreneurial decisions are by definition characterized by uncertainty regarding future events rational expectations theories have become a major new line of thought in dealing with future uncertainty in the literature we find mainly attempts to estimate indirectly relationships on observable behaviour and strategies which are derived from postulated expectations of decision makers normally such expectations are not directly observed in our paper we have analysed a set of empirical regional micro data on entrepreneurial expectations regarding their future decisions whilst for the same period the observed and realized data are also available this allows for a test between expectations and realizations the paper develops

reconsiderations in the foundations of decision under uncertainty an explosion has occurred during the past decade in the foundations of decision making under risk and uncertainty the long dormant challenges of allais i 953a b to the von neumann morgenstern i944 independence axioms of allais and of ellsberg 1 96 i to savage s i 954 sure thing principle and of may 1954 and tversky i969 to the transitivity of preferences have sprung to new life through widespread empirical corroboration in the wake of the new evidence an array of representations of preferences has been proposed to accommodate failures of one or more of the traditional axioms 2 although some new models are solely descriptive kahneman and tversky 1979 others have normative interest as competitors of the von neumannmorgenstern expected utility theory quiggin i982 machina i982 chew i982 i983 fishburn i982 or of savage s subjective probability expected utility theory bell i982 loomes and sugden i982 i987 schmeidler i984 gilboa i985 luce and narens i985 fishburn i984 b i986b one benefit of recent foundational work is a deeper understanding of the content and implications of expected utility coupled with a new appreciation of the underlying issues that divided decision theorists a generation ago i am thinking especially of the 1952 paris colloquium on decision under uncertainty allais 1979 pp 446 7 at which allais confronted defenders of expected utility de finetti friedman marschak samuelson savage with his insistence on riskless measurement of the utility of wealth and violations of independence axioms the colloquium appears to have ended in a standoff but enabled each side to sharpen its own position

observing violations of transitivity by experimental methods the preference reversal phenomenon is usually interpreted as evidence of nontransitivity of preference but has also been explained as the result of the difference between individuals responses to choice and valuation problems the devices used by experimenters to elicit valuations and the random lottery selection incentive system this paper reports an experiment designed so that none of these factors could generate systematic nontransitivities yet systematic violations of transitivity were still found the pattern of violation was analogous with that found in previous preference reversal experiments and is consistent with regret theory copyright 1991 by the econometric society

biases in macroeconomic forecasts irrationality or asymmetric loss empirical studies using survey data on expectations have frequently observed that forecasts are biased and have concluded that agents are not rational we establish that existing rationality tests are not robust to even small deviations from symmetric loss and hence have little ability to tell whether the forecaster is irrational or the loss function is asymmetric we quantify the exact trade off between forecast inefficiency and asymmetric loss leading to identical outcomes of standard rationality tests and explore new and more general methods for testing forecast rationality jointly with flexible families of loss functions that embed quadratic loss as a special case an empirical application to survey data on forecasts of nominal output growth demonstrates the empirical significance of our results and finds that rejections of rationality may largely have been driven by the assumption of symmetric loss

testing new theories of choice under uncertainty using the common consequence effect a generalised common consequence problem is used to contrast the predictions of expected utility theory and several new theories of choice under uncertainty an experiment designed to test these predictions is reported systematic violations of expected utility theory are detected but although a consistent pattern emerges from the data it offers little support for any of the new theories the analysis is extended to test predictions which are unique to regret theory and significant regret effects are detected

how well do economists forecast stock market prices a study of the livingston surveys the desire to forecast stock prices appears to be eternal alfred cowles 1933 was one of the first researchers to evaluate statistically how well professional forecasters predict stock prices in this tradition our paper will explore the statistical properties of the livingston stock market forecasts a number of recent studies including those by josef lakonishok 1980 bryan brown and shlomo maital 1981 and douglas pearce 1984 finds that the livingston stock market forecasts are statistically biased and or do not utilize all available information i e are informationally inefficient in contrast to earlier studies we find using 61 semiannual livingston surveys from june 1955 through june 1985 that stock market forecasts are statistically unbiased and minimum error variance estimators in section i we show that earlier studies are likely to mask the true relationships between stock market forecasts and realized rates of return because of inappropriate computational algorithms in section ii we present our statistical results based upon the corrected data algorithm we provide a brief summary of the paper in the last section 1 computing livingston stock market rate of return forecasts

black white earnings ratios since the civil rights act of 1964 the importance of labor market dropouts published median earnings of wage and salary workers by race and sex are based on distributions that exclude those without earnings and those not employed as wage and salary workers at the time of the survey it has been argued that the changing importance of these exclusions rather than any improvement in the distribution of offered wages for blacks accounts for the apparent increase in black white relative median earnings this paper presents a new method for correcting the published medians for such censoring the apparent improvement in relative earnings is reduced but not eliminated by the correction

economic forecasts rationality and the processing of new information over time this study analyzes real gnp and inflation forecasts published in the blue chip economic indicators the survey revises annual growth rate estimates every month thus making it possible to analyze the value of new information and its contribution to the estimates predictive power of the actual values if information is used efficiently updated forecasts should provide more accurate predictions the empirical results suggest that the revised forecasts of real gnp growth and inflation incorporate new information in a rational manner in addition the most recent inflation forecasts are found to be unbiased estimates on the actual rate of inflation copyright 1990 by ohio state university press

developments in non expected utility theory the hunt for a descriptive theory of choice under risk this article reviews recent developments in the economic theory of individual decision making under risk since the 1950s it has been known that individual choices violate the standard model of expected utility in predictable ways considerable research effort has now been devoted to the project of developing a superior descriptive model following an overview of non expected utility theories which distinguishes between conventional and non conventional approaches the paper seeks to assess these alternative models in terms of empirical success using laboratory and field data and theoretical usefulness the closing sections reflect on some new directions emerging in this literature

preference reversal information processing effect or rational non transitive choice preference reversal is often explained as an information processing effect whereby individuals respond differently to valuation problems than to straight choices regret theory offers the alternative explanation that individuals act on consistent but nontransitive preferences regret theory in its most general form is shown to make specific predictions about nontransitive pairwise choices that correspond with the preferences reversal phenomenon some experiments designed to discriminate between these two explanations are reported the main finding is that as regret theory predicts the preference reversal phenomenon can be reproduced in situations in which subjects confront only choice problems copyright 1989 by royal economic society

on the restricted cointegration test as a test of the rational expectations hypothesis one of the main consequences of the cointegration revolution on the domain of the direct tests of the rational expectations hypothesis reh was the substitution of the restricted cointegration test rct for the unbiasedness test however the results of a monte carlo study show that a simple t test can be much more powerful than the rct it is argued that the rct is adequate to investigate the asymptotic rationality but that it is not sufficient to assess the muthian rationality of expectations the discussion is empirically illustrated with the test of the reh for the portuguese retail trade inflation expectations

labor market dropouts and trends in the wages of black and white men there is continuing debate over whether and to what degree estimations of black white wage convergence are biased because they leave labor market dropouts out of the picture if a high proportion of blacks become discouraged and cease searching for jobs and if those dropouts have on average poor job prospects the average wage of black workers who remain in the labor market will be an upwardly biased estimate of the average wage across the population this paper introduces a simple method of imputing wages to non workers when non workers are accounted for in the calculations real wage growth for prime age black men over the 1969 98 period is reduced approximately 40 and black white wage convergence is reduced by approximately one third the author finds that a source of bias as important as falling employment rates is the growing gap between wages of workers and potential wages of non workers

more flexible use of survey data on expectations in macroeconomic models a flexible procedure is proposed whereby both the random and systematic errors in measurement of survey data on inflation expectations can be appropriately handled when these surveys are used in the estimation of macroeconomic models during the period 1952 1980 livingston s two expectations series and the src series systematically underestimated inflation expectations by nearly 25 the asa nber survey however does not exhibit such underestimation thus the use of the livingston or src data as an unbiased measure of the true expectations of inflation would result in overestimation of the fisher effect and the ex ante real interest rate

survey evidence on the rationality of expectations summary data on expectations collected by business surveys offer the opportunity to test the rational expectation hypothesis tests directly based on qualitative data are not powerful because of the nature of the data an alternative method is proposed in this paper we apply the usual orthogonality conditions of rationality to the unobservable variables which are assumed to trigger the categorical responses of surveys when they cross certain thresholds to implement the test an original estimation method for latent variable models using indicators is required the results show that the hypothesis is not always rejected for the expectations of changes in demand drawn from surveys of french manufacturing industry

a rational explanation for irrational forecasts of inflation abstract this paper analyzes professionals forecasts of nominal income and the inflation rate the analysis indicates that both monetary and fiscal policy data was used efficiently to forecast income but the monetary policy data was not used efficiently to forecast the inflation rate further analysis suggests that the apparent inefficient use of the monetary data results from the non stationary money inflation relationship predicted by rational expectations models these models then provide an explanation for the inconsistent conclusions regarding the income forecasts and the inflation rate forecasts

on the rationality of us macroeconomic forecasts evidence from a panel of professional forecasters asa nber survey data is used to check the rationality of us macroeconomic forecasts it is found that of 75 forecast series examined 51 are biased 25 are both unbiased and efficient and only two pass the null hypothesis of orthogonality this calls into question the validity of rational expectations hypothesis

black men s relative earnings are the gains illusory this study investigates the hypothesis that the increase in the median earnings of black men relative to those of white men after 1964 in the united states largely reflects the labor force withdrawal of high proportions of low wage black men who availed themselves of government transfers analyzing current population survey and social security administration data through 1985 the author finds little empirical support for three direct implications of the sample censoring hypothesis of the total measured gain in relative earnings between 1964 and 1985 from 531 to 663 or 13 2 percentage points he finds that only 14 or 1 8 percentage points can be attributed to sample selection

evaluating information in multiple horizon forecasts the doe s energy price forecasts abstract the united states department of energy s doe quarterly price forecasts for energy commodities are examined to determine the incremental information provided at the one through four quarter forecast horizons a direct test for determining information content at alternative forecast horizons developed by vuchelen and gutierrez vuchelen j and gutierrez m i a direct test of the information content of the oecd growth forecasts international journal of forecasting 21 2005 103 117 is used the results suggest that the doe s price forecasts for crude oil gasoline and diesel fuel do indeed provide incremental information out to three quarters ahead while natural gas and electricity forecasts are informative out to the four quarter horizon in contrast the doe s coal price forecasts at two three and four quarters ahead provide no incremental information beyond that provided for the one quarter horizon recommendations of how to use these results for making forecast adjustments is also provided

preference reversals the impact of truth revealing monetary incentives researchers vigorously debate the impact of incentives in preference reversal experiments do incentives alter behavior and generate economically consistent choices lichtenstein and slovic 1971 document inconsistencies reversals in revealed preference in gamble pairs across paired choice and individual pricing tasks the observed pattern is inconsistent with stable underlying preferences expressed with simple errors lichtenstein and slovic 1973 and grether and plott 1979 introduce incentives but aggregate reversal rates change little these results fostered numerous replications and assertions that models of non stable preferences are required to explain reversals contrary to this research we find that incentives can generate more economically consistent behavior our reevaluation of existing experimental data shows that incentives have a clear impact by better aligning aggregate choices and prices the effect is sufficiently large that with truth revealing incentives a stable preferences with error model not only explains behavior but fits the data as well as any model possibly could

the unbiasedness hypothesis in the forward foreign exchange market a specification analysis with application to france italy japan the united kingdom and west germany abstract the purpose of this paper is to carry out a specification analysis of a test relation for the unbiasedness hypothesis using thirty day forward foreign exchange data from france italy japan the united kingdom and west germany the results indicate that econometric problems do exist for each country s test equation over the entire sample for each country there is at least one period which admits a statistically adequate regression equation results for these periods show that the null hypothesis of the unbiasedness of the forward rate is rejected for some countries but is retained for others

modelling price expectations an important difference between policy prescriptions based on different macroeconomic models relates to the way in which expectations are modelled in turn different approaches to expectations formation can be characterized in terms of the information available to agents and thus it becomes important to look at as many dimensions of the information set as possible because of the paucity of direct information on expectations many studies have concentrated on the few series of this nature which are available of paramount importance here is the livingston survey data on consumer price expectations however it is argued here that much previous work using these data is flawed through an inadequate consideration of the frequency on which expectations are formed and the information on which they are based

school quality and black white relative earnings a direct assessment the wage differential between black and white men fell from 40 percent in 1960 to 25 percent in 1980 it has been argued that this convergence reflects improvements in the relative quality of black schools to test this hypothesis we assembled data on pupil teacher ratios annual teacher pay and term length for black and white schools in the eighteen segregated states from 1915 to 1966 these data are linked to estimated returns to education for southern born men from different cohorts and states in 1960 1970 and 1980 improvements in the relative quality of black schools explain 20 percent of the narrowing of the black white earnings gap between 1960 and 1980

blue chip rationality tests this paper tests the rationality of forecasts made by individuals who contribute to the blue chip consensus forecasting service and tries by means of a questionnaire on forecasting methods to establish why some forecasters appear more rational than others tests based on consensus forecasts prove unreliable as guides to the number of individuals who produce rational forecasts individual forecasts are more likely to be rational if they are based on a mainstream economic theory and incorporate a substantial element of judgment copyright 1991 by ohio state university press

what do economists know an empirical study of experts expectations for more than three decades economic columnist joseph a livingston has canvassed a panel of economists twice a year eliciting their six month and twelve month forecasts for more than a dozen key variables this study analyzes whether the experts predictions are unbiased and whether complete use was made of all relevant known information unbiasedness and completeness being necessary conditions for fully rational expectations little bias was found in either the half year or full year predictions but extensive underutilization of information particularly data on monetary growth occurred to prophecy is extremely difficult especially with respect to the future chinese proverb do economists expectations regarding key price and nonprice variables utilize all known relevant information in an unbiased efficient manner this is a worthy subject for research for several reasons properties of experts predictions likely form an upper bound for those of laymen further as john muth 14 has noted the character of dynamic processes is typically very sensitive to the way expectations are influenced by the actual course of events p 316 hence we need to know precisely how events do affect expectations finally the common practice of replacing a variable s generally unobserved expectation with a proxy based on its past values will be unbiased and will not cause bias in other

inflation expectations revisited this paper describes the construction and main features of a new monthly time series for the mean and standard deviation of consumer inflation expectations in the united kingdom in the years 1961 85 based on a number of consumer surveys this involves generalizing to four and five category tendency survey data the method used by j a carlson and m parkin 1975 to quantify the results of a three category tendency survey of inflation expectations the new series exhibit very different time series properties from the original carlson parkin data copyright 1988 by the london school of economics and political science

the accuracy and rationality of uk inflation expectations some quantitative evidence 1987 the accuracy and rationality of uk inflation expectations some quantitative evidence applied economics vol 19 no 6 pp 819 828

what do investment managers know an empirical analysis of practitioners predictions the rationality of investment managers expectations is tested using quantified survey data the variables examined include expectations of the annual percentage chan ge in the u k fta all share and u s standard and poor s composite s tock market indices and the expected rates of u k price and wage in flation tests for the orthogonality of forecast errors to both small and large information sets known at the time of the forecast are car ried out both with and without allowance for measurement errors in t he expectations series the results decisively reject the rational ex pectations hypothesis as applied to investment managers expectations copyright 1988 by the london school of economics and political science

do the oecd 24 month horizon growth forecasts for the g7 countries contain information the oecd produces two year ahead growth forecasts for the g7 countries since 1987 these forecasts have never been evaluated a regression is developed that tests for the information content of the forecasts the idea is that this content is the added value forecasters incorporate in their forecasts the information content is defined relative to the forecast for the previous year in the end the added value contained in the current year forecast is calculated relative to the last observation the test consists in checking whether the information content reduces the forecasts error 1 the authors of the present study refer to mincer and zarnowitz 1969 mcnees 1988 stekler 1991 and fildes and stekler 2002 for a discussion of the evaluation techniques of forecasts the study begins with a calculation of the usual accuracy statistics these indicate an extreme low quality for the forecasts the regression tests support this conclusion although the forecasts for japan do possess some information al