title: What Goes Up Must Come Down? Experimental Evidence on Intuitive Forecasting.
abstract: Do laboratory subjects correctly perceive the dynamics of a mean-reverting time series? In our experiment, subjects receive historical data and make forecasts at different horizons. The time series process that we use features short-run momentum and long-run partial mean reversion. Half of the subjects see a version of this process in which the momentum and partial mean reversion unfold over 10 periods ('fast'), while the other subjects see a version with dynamics that unfold over 50 periods ('slow'). Typical subjects recognize most of the mean reversion of the fast process and none of the mean reversion of the slow process.
authors.affiliation: Stanford Graduate School of Business, 655 Knight Way, Stanford, CA 94305.
authors.forename: John
authors.initials: J
authors.lastname: Beshears
authors.affiliation: Yale School of Management, 135 Prospect St., New Haven, CT 06520.
authors.forename: James J
authors.initials: JJ
authors.lastname: Choi
authors.affiliation: Federal Reserve Bank of New York, 33 Liberty St., New York, NY 10045.
authors.forename: Andreas
authors.initials: A
authors.lastname: Fuster
authors.affiliation: Dept. of Economics, Harvard University, Cambridge, MA 02138.
authors.forename: David
authors.initials: D
authors.lastname: Laibson
authors.affiliation: Harvard Kennedy School, 79 JFK St., Cambridge, MA 02138.
authors.forename: Brigitte C
authors.initials: BC
authors.lastname: Madrian