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Identification of Interaction Effects in Survey Expectations: A Cautionary Note

Author

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  • Alfarano Simone

    (University of Castellón “Jaume I”)

  • Milakovic Mishael

    (University of Bamberg, Germany)

Abstract
A growing body of literature reports evidence of social interaction effects in survey expectations. In this note, we argue that evidence in favor of social interaction effects should be treated with caution, or could even be spurious. Utilizing a parsimonious stochastic model of expectation formation and dynamics, we show that the existing sample sizes of survey expectations are about two orders of magnitude too small to reasonably distinguish between noise and interaction effects. Moreover, we argue that the problem is compounded by the fact that highly correlated responses among agents might not be caused by interaction effects at all, but instead by model-consistent beliefs. Ultimately, these results suggest that existing survey data cannot facilitate our understanding of the process of expectations formation.

Suggested Citation

  • Alfarano Simone & Milakovic Mishael, 2012. "Identification of Interaction Effects in Survey Expectations: A Cautionary Note," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 16(4), pages 1-23, October.
    • Handle: RePEc:bpj:sndecm:v:16:y:2012:i:4:n:5
    DOI: 10.1515/1558-3708.1909
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    More about this item

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • C83 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Survey Methods; Sampling Methods

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