Signal extraction: experimental evidence

We report on an experiment examining whether individuals can solve a simple signal extraction problem of the type found in models with imperfect information. In one treatment, subjects must form point predictions based on observing both public and private signals, while in another they receive the s...

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Bibliographic Details
Published inTheory and decision Vol. 90; no. 2; pp. 219 - 232
Main Authors Bao, Te, Duffy, John
Format Journal Article
LanguageEnglish
Published New York Springer US 01.03.2021
Springer Nature B.V
Subjects
Behavioral/Experimental Economics
Economic Theory/Quantitative Economics/Mathematical Methods
Economics
Economics and Finance
Extraction
Finance
Flow control
Game Theory
Heterogeneity
Insurance
Management
Operations Research/Decision Theory
Social and Behav. Sciences
Statistics for Business
Signal extraction model
Heterogeneous expectations
Belief updating
Bayesian learning
Online AccessGet full text
ISSN0040-5833
1573-7187
DOI10.1007/s11238-020-09785-x

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Summary:We report on an experiment examining whether individuals can solve a simple signal extraction problem of the type found in models with imperfect information. In one treatment, subjects must form point predictions based on observing both public and private signals, while in another they receive the same information but must decide on the weight to attach to each signal, which then determines their point prediction. We find that, at the aggregate level, signal extraction provides a good characterization of subjects’ behavior in both treatments, but at the individual level, there is considerable heterogeneity in subjects’ ability to perform signal extraction.
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ISSN:0040-5833
1573-7187
DOI:10.1007/s11238-020-09785-x