Arlington W. Williams

Gerald P. Dwyer, Jr.

Raymond Battalio

Timothy Mason

English

Research Papers in Economics

 
 
 
 
 
 
 
 
 
 
WORKING PAPER SERIES 
 
 
 
Tests of Rational Expectations 
in a Stark Setting 
 
 
Gerald P. Dwyer, Jr. 
Arlington W. Williams 
Raymond C. Battalio 
and 
Timothy I. Mason 
 
 
Working Paper 1989-001A 
http://research.stlouisfed.org/wp/1989/1989-001.pdf 
 
 
1989 
 
 
 
FEDERAL RESERVE BANK OF ST. LOUIS 
Research Division 
411 Locust Street 
St. Louis, MO 63102 
______________________________________________________________________________________ 
The views expressed are those of the individual authors and do not necessarily reflect official positions of 
the Federal Reserve Bank of St. Louis, the Federal Reserve System, or the Board of Governors. 
Federal Reserve Bank of St. Louis Working Papers are preliminary materials circulated to stimulate 
discussion and critical comment. References in publications to Federal Reserve Bank of St. Louis Working 
Papers (other than an acknowledgment that the writer has had access to unpublished material) should be 
cleared with the author or authors. 
Photo courtesy of The Gateway Arch, St. Louis, MO.   www.gatewayarch.comABSTRACT 
We tesc the hypothesis that forecasts by participants In a stark 
experimental setting are the same as the rational expectation.  At Peast for 
a process as sinple as a random walk, relatively sophisticated as well as 
relatively unsophisticated participants' forecasts can be characterized as 
consistent with rational expectations.  We find no support for the 
proposition that one-step-ahead  forecasts are predictably wrong and 
substantial support for the converse proposition.  The variance of forecast 
errors, though, is greater than for the rational expectation.  Some 
participants have differences between two-step-ahead  and one-step-ahead 
forecasts that are statistically significant,  but the direction of bias is 
not systematic across individuals. 
Address correspondence to: 
before August 1,  1989  after August 1,  1989 
Mr. Gerald P.  Dwyer,  Jr.  Professor Gerald P.  Dwyer,  Jr.  --.  vrsieing Scholar  Department of Economics 
Research Department  Clemson University 
Federal Reserve Bank of St. Louis  Clernson, South Carolina 14  3  1 
P.  0.  Box 442 
St. Louis,  NO 63166 

Tests of rational expectations in a stark setting

http://research.stlouisfed.org/wp/1989/1989-001.pdf

Tests of rational expectations in a stark setting

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Research Papers in Economics