Work

Testing the rationality of expectations of qualitative outcomes

Year: 2018

Type: article

Abstract: Summary This article provides an adequate statistic for testing the rationality of point predictions of categorical outcomes under a subjective median or mode assumption. The test improves upon previous approaches by accounting for all the required moment inequalities and their respective covariance matrix in a single statistic. Monte Carlo simulations show that the test has an improved Type I error, especially in cases with multiple modes. Applying these tests to a dataset with parents' and students' predictions of school scores, I find that respondents are biased towards expecting higher grades and that students' expectations are correlated with the time of study.

Source: Journal of Applied Econometrics

Author: Carlos Madeira

Institution: Banco Central de Chile

Language: English

Topic: Forecasting Techniques and Applications

Subfield: Management Science and Operations Research

Field: Decision Sciences

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $4,030

Funders: Northwestern University, Harvard University, Universidad de Alicante, University of Essex, Institute for Quantitative Social Science, Harvard University, University of Exeter, Fundação Calouste Gulbenkian, Fundação para a Ciência e a Tecnologia

OpenAlex ID: W2802919383

FWCI: 0.2

Cites: 30

Cited by: 7

Related to: 10