Cookies?
Library Header Image
LSE Research Online LSE Library Services

The formation of expectations: competing theories and new evidence

Foster, Gigi and Frijters, Paul (2014) The formation of expectations: competing theories and new evidence. Journal of Behavioral and Experimental Economics, 53. pp. 66-81. ISSN 2214-8043

Full text not available from this repository.
Identification Number: 10.1016/j.socec.2014.08.001

Abstract

Agents form expectations about the future in many markets, and these expectations drive investment and consumption behavior, inform entry and exit choices, and can even provide direct satisfaction or distress. How agents form expectations is therefore of central interest to economists. This paper reviews three competing theories and then provides empirical evidence about what elements make up an agent's expectation about an outcome that is person-specific, susceptible to influence by the agent's own actions, and fairly well predictable on the basis of historical precedent. We examine repeated cross-sections of hundreds of undergraduate students’ expectations at mid-semester of their own final course grades at two Australian universities. Data on actual and expected grades are exploited, as well as demographic and psychological information, course information, and data on students’ academic background, effort levels, happiness, and historical progress at university prior to expectation formation. Results indicate that a simple rational expectations model of expectation formation provides a poorer fit to the data than a utility model involving either direct utility benefits from expectations, or a psychological need to hold high expectations

Item Type: Article
Official URL: https://www.journals.elsevier.com/journal-of-behav...
Additional Information: © 2014 Elsevier Inc.
Divisions: Centre for Economic Performance
Subjects: H Social Sciences > HB Economic Theory
Sets: Research centres and groups > Centre for Economic Performance (CEP)
Date Deposited: 07 Feb 2018 15:38
Last Modified: 20 Feb 2019 11:07
URI: http://eprints.lse.ac.uk/id/eprint/86675

Actions (login required)

View Item View Item