Fooling Some of the Public Some of the Time? A Test for Weak Rationality With Heterogeneous Information Levels

Abstract

Past research demonstrates that economic expectations of mass publics are related to political and policy outcomes. However, these studies often assume the public possesses the same information levels and capabilities, and some inappropriately equate a prospective orientation with the ability to make unbiased forecasts. In this article the authors relax the information-homogeneity assumption and use education level as a proxy for heterogeneity. These heterogeneous education (information) levels are used in a test for unbiased forecasting (i.e., weak rational expectations) in inflation expectations data from the Institute of Social Research's Survey of Consumer Attitudes and Behavior. The period of analysis is January 1978 to December 1993. The descriptive evidence indicates that the members of better-educated strata are more accurate in predicting future movements in actual inflation. The more rigorous tests show that only the most educated exhibit any evidence of weak rational expectations. This suggests that the often contradictory results of past studies may be partly attributable to the information homogeneity assumption. On a broader level, the findings reflect the mass public's varying abilities to hold elected officials accountable