Jane M. Ryngaert
Wake Forest University
Winston-Salem, NC 27109 USA
Institutional Affiliation: Wake Forest University
NBER Working Papers and Publications
|September 2018||Do You Know That I Know That You Know...? Higher-Order Beliefs in Survey Data|
with Olivier Coibion, Yuriy Gorodnichenko, Saten Kumar: w24987
We implement a new survey of firms, focusing on their higher-order macroeconomic expectations. The survey provides a novel set of stylized facts regarding the relationship between first-order and higher-order expectations of economic agents, including how they adjust their beliefs in response to a variety of information treatments and how these adjustments affect their economic decisions. We show how these facts can be used to calibrate key parameters of noisy-information models with infinite regress as well as to test predictions made by this class of models. The survey also quantifies cognitive limits of agents in the form of level-k thinking. We find little evidence that this departure from infinite regress helps reconcile the data and theory.