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"Expectation"
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The Formation of Expectations, Inflation, and the Phillips Curve
This paper argues for a careful (re)consideration of the expectations formation process and a more systematic inclusion of real-time expectations through survey data in macroeconomic analyses. While the rational expectations revolution has allowed for great leaps in macroeconomic modeling, the surveyed empirical microevidence appears increasingly at odds with the full-information rational expectation assumption. We explore models of expectation formation that can potentially explain why and how survey data deviate from full-information rational expectations. Using the New Keynesian Phillips curve as an extensive case study, we demonstrate how incorporating survey data on inflation expectations can address a number of otherwise puzzling shortcomings that arise under the assumption of full-information rational expectations.
Journal Article
Information Rigidity and the Expectations Formation Process: A Simple Framework and New Facts
We propose a new approach to test the full-information rational expectations hypothesis which can identify whether rejections of the null arise from information rigidities. This approach quantifies the economic significance of departures from the null and the underlying degree of information rigidity. Applying this approach to US and international data of professional forecasters and other agents yields pervasive evidence consistent with the presence of information rigidities. These results therefore provide a set of stylized facts which can be used to calibrate imperfect information models. Finally, we document evidence of state-dependence in the expectations formation process.
Journal Article
The experience machine : how our minds predict and shape reality
\"A grand new vision of cognitive science that explains how our minds build the world, learn from it, and sometimes deceive themselves For as long as we've studied the mind, we've believed that our senses determine what our mind perceives. But as our understanding of neuroscience and psychology has advanced in the last few decades, a new view has emerged that has proven to be both provocative and hugely powerful-that the mind is not a passive observer, but an active predictor. At the core of this research is the radical reimagination of the way our brains process sensory information. Now this new school of \"predictive processing\" is arguing that we anticipate what we will see before we process the experience. Only then does our brain compare its prediction to the sensory information. At the forefront of this research is widely acclaimed philosopher Andy Clark, who has synthesized his revolutionary work on the predictive brain to explore its fascinating mechanics and implications. The most stunning of these is the realization that experience itself, because it is guided by prior expectation, is a kind of controlled hallucination. From the most mundane experiences to the most sublime, it is the mind that shapes most of our reality. Encountering errors in prediction helps us learn and makes us confident experts, but predictive feedback loops can also lock in conditions like chronic pain, addiction, and anxiety. A landmark study of cognitive science, The Experience Machine is a grand vision that sketches the extraordinary explanatory power of the predictive brain for our lives, health, world, and society\"-- Provided by publisher.
Book
Expectations of Returns and Expected Returns
We analyze time series of investor expectations of future stock market returns from six data sources between 1963 and 2011. The six measures of expectations are highly positively correlated with each other, as well as with past stock returns and with the level of the stock market. However, investor expectations are strongly negatively correlated with model-based expected returns. The evidence is not consistent with rational expectations representative investor models of returns.
Journal Article
The invention of tomorrow : a natural history of foresight
\"Apes can do a lot of things that we can, too: they can use tools, tell bigger from smaller, and even say hello. But one thing they can't do is say \"see you tomorrow.\" That's not just because they don't speak English, but because they are unable to imagine reencountering another ape in the future. Humans, of course, can. As Thomas Suddendorf, Jon Redshaw, and Adam Bulley reveal, that represents a truly earth-shattering capacity. In The Invention of Tomorrow, the three cognitive scientists argue that humanity's unique capacity for foresight is the key to our global dominance. Our minds work like time machines, they explain, allowing us to relive past events in order to predict possible futures. Drawing on cutting-edge research from the last decade - including much of the authors' own work - Suddendorf, Redshaw, and Bulley break down the science of foresight, showing us how this fundamental tool evolved and what makes it unique among animal minds. Foresight powers what are essentially private mental time machines that power our species' capacity for innovation, communication, and moral responsibility. Ultimately, the authors offer us a new vision of human progress, one that foregrounds our capacity to think ahead. Even though we sometimes get it wrong, they argue, human beings are better able to handle future dangers than any creature that has ever existed. The Invention of Tomorrow is a paradigm-shifting exploration of one of humanity's greatest powers, showing how an apparently banal trait has been the key to human ingenuity and culture\"-- Provided by publisher.
Book
Stock Price Booms and Expected Capital Gains
Investors' subjective capital gains expectations are a key element explaining stock price fluctuations. Survey measures of these expectations display excessive optimism (pessimism) at market peaks (troughs). We formally reject the hypothesis that this is compatible with rational expectations. We then incorporate subjective price beliefs with such properties into a standard asset-pricing model with rational agents (internal rationality). The model gives rise to boom-bust cycles that temporarily delink stock prices from fundamentals and quantitatively replicates many asset-pricing moments. In particular, it matches the observed strong positive correlation between the price dividend ratio and survey return expectations, which cannot be matched by rational expectations.
Journal Article
Perspectives in role ethics : virtues, reasons, and obligation
\"Although our moral lives would be unrecognisable without them, roles have received little attention from analytic moral philosophers. Roles are central to our lives and to our engagement with one another, and should be analysed in connection with our core notions of ethics such as virtue, reason, and obligation. This volume aims to redress the neglect of role ethics by confronting the tensions between conceptions of impartial morality and role obligations in the history of analytic philosophy and the Confucian tradition. Different perspectives on the ethical significance of roles can be found by looking to debates within professional and applied ethics, by challenging existing accounts of how roles generate reasons, by questioning the hegemony of ethical reasons, and by exploring the relation between expertise and virtue. The essays tackle several core questions related to these debates: - What are roles and what is their normative import? - To what extent are roles and the ethics of roles central to ethics as opposed to virtue in general, and obligation in general? - Are role obligations characteristically incompatible with ordinary morality in professions such as business, law, and medicine? - How does practical reason function in relation to roles? Perspectives in Role Ethics is an examination of a largely neglected topic in ethics. It will appeal to a broad range of scholars in normative ethics, virtue ethics, non-Western ethics, and applied ethics interested in the importance of roles in our moral life\"-- Provided by publisher.
Book
SENTIMENTS
This paper develops a new theory of fluctuations—one that helps accommodate the notions of \"animal spirits\" and \"market sentiment\" in unique-equilibrium, rational-expectations, macroeconomic models. To this goal, we limit the communication that is embedded in a neoclassical economy by allowing trading to be random and decentralized. We then show that the business cycle may be driven by a certain type of extrinsic shocks which we call sentiments. These shocks formalize shifts in expectations of economic activity without shifts in the underlying preferences and technologies; they are akin to sunspots, but operate in unique-equilibrium models. We further show how communication may help propagate these shocks in a way that resembles the spread of fads and rumors and that gives rise to boom-and-bust phenomena. We finally illustrate the quantitative potential of our insights within a variant of the RBC model.
Journal Article