Many papers have reported behavioral biases in belief formation that come on top of standard game-theoretic reasoning. We show that the processes involved depend on the way participants reason about their beliefs. When they think about what everybody else or another "unspeci fied" individual is...

The notion of optimized rational behavior in the formation of expectations is used in this note to study the dynamics of a simple macroeconomic model. In a setting where departures from stability are not possible under perfect foresight, the selection of an optimal degree of rationality may lead...

Through building the statistical structure of game theory, this paper develops a paradigm of rationality and equilibrium to model collective and interactive behaviors for various economic ecologies from a perfect organizing corporation to a complete freedom population such as an anarchy. In...

As expectations are driven by information, its selection is central in explaining common knowledge building and unraveling in financial markets. This paper addresses this information selection problem by proposing imitation as a key mechanism to explain opinion dynamics. Behavioral and cognitive...

Belief elicitation is important in many different felds of economic research. We show that how a researcher elicits such beliefs-in particular, whether the belief is about the participant's opponent, an unrelated other, or the population of others-affects the processes involved in the formation...

The rational expectations hypothesis (REH) is the standard approach to expectations formation in macroeconomics. We discuss its compatibility with two strands of Karl Popper's philosophy: his theory of knowledge and learning, and his "rationality principle" (RP). First, we show that the REH is...

An important advance in the study of reference-dependent preferences is the discipline provided by coherent accounts of reference point formation. Kőszegi and Rabin (2006) provide such discipline by positing a reference point grounded in rational expectations. We examine the predictions of...

Recent studies suggest that the type of strategic environment or expectation feedback may have a large impact on whether the market learns the rational fundamental price. We present an experiment where the fundamental price experiences large unexpected shocks. Markets with negative expectation...