Testing the rationality of expectations of qualitative outcomes

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.

Partial identification of nonlinear peer effects models with missing data

“…In models of social interactions, the individual behavior depends both on individual characteristics and on aggregate characteristics of members of the group of which the agent is a member (Advani & Malde, 2018), integrating sociological concepts and economic thinking (Blume et al 2010). Important applications of peer effects models have been developed for education (Sacerdote, 2001, Cipollone & Rosolia, 2007, Lalive & Cattaneo, 2009, Sojourner, 2013, Ammermueller & Pischke, 2009, Madeira, 2018, health behaviors (Bruhin et al, 2020, Bailey et al, 2021, employment (Roth, 2020) or migration (Slotwinski et al, 2019).…”