| Abstract: | The Rational Expectations Hypothesis claims that all available information is used in making forecasts. We contend that one of the pieces of information used by forecasters is the previous forecasts of others. Psychologists have demonstrated that under conditions of ambiguous stimuli. individuals frequently adapt their individual opinions so as to conform to peer opinions. Thus, we develop a Convergent Expectations Hypothesis, in which forecasters incorporate previous forecasts of other agents in forming their own expectations. The hypothesis is tested using data from six forecaster groups for four time periods. In all four time periods, forecasters appear to make considerable use of the prior consensus forecast in developing their own predictions. The resulting expectations may still be ‘rational’ in that there are psychological and perhaps financial benefits to conforming to the forecasts of professional peers. |
