We report on experimental evidence rationalizing the use of heterogeneous agent models. We provide compelling evidence that subjects in laboratory experiments often behave in ways that depart from the rational choice ideal. Further, these subjects' heuristic approaches often differ from one...

Recent survey evidence suggests that investors form beliefs about future stock returns by predominantly extrapolating their own experience: They overweight returns they have personally experienced while underweighting returns from earlier years and consequently expect high (low) stock market...

This chapter examines the relationship between agent-based modeling and economic decision-making experiments with human subjects. Both approaches exploit controlled “laboratory” conditions as a means of isolating the sources of aggregate phenomena. Research findings from laboratory studies...

We use novel survey data to estimate how personal experiences affect household expectations about aggregate economic outcomes in housing and labor markets. We exploit variation in locally experienced house prices to show that individuals systematically extrapolate from recent locally experienced...

This paper studies a new aspect of firms' expectation formation by asking whether expectations primarily reflect aggregate, industry-wide information (e.g., industry trends) or disaggregate information (e.g., firm-specific information). First, we show that disaggregate information is strongly...