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How Experts Decide: Identifying Preferences versus Signals from Policy Decisions

Author

Listed:
  • Hansen, Stephen
  • McMahon, Michael
Abstract
A large theoretical literature assumes that experts differ in terms of preferences and the distribution of their private signals, but the empirical literature to date has not separately identified them. This paper proposes a novel way of doing so by relating the probability a member chooses a particular policy decision to the prior belief that it is correct. We then apply this methodology to study differences between internal and external members on the Bank of England’s Monetary Policy Committee. Using a variety of proxies for the prior, we provide evidence that they differ significantly on both dimensions.

Suggested Citation

  • Hansen, Stephen & McMahon, Michael, 2011. "How Experts Decide: Identifying Preferences versus Signals from Policy Decisions," Economic Research Papers 270761, University of Warwick - Department of Economics.
    • Handle: RePEc:ags:uwarer:270761
    DOI: 10.22004/ag.econ.270761
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    References listed on IDEAS

    as
    1. Timothy Besley & Neil Meads & Paolo Surico, 2008. "Insiders versus Outsiders in Monetary Policymaking," American Economic Review, American Economic Association, vol. 98(2), pages 218-223, May.
    2. Christopher Spencer, 2006. "The Dissent Voting Behaviour of Bank of England MPC Members," School of Economics Discussion Papers 0306, School of Economics, University of Surrey.
    3. Ellen E. Meade & David Stasavage, 2008. "Publicity of Debate and the Incentive to Dissent: Evidence from the US Federal Reserve," Economic Journal, Royal Economic Society, vol. 118(528), pages 695-717, April.
    4. Gerling, Kerstin & Gruner, Hans Peter & Kiel, Alexandra & Schulte, Elisabeth, 2005. "Information acquisition and decision making in committees: A survey," European Journal of Political Economy, Elsevier, vol. 21(3), pages 563-597, September.
    5. Arnab Bhattacharjee & Sean Holly, 2004. "Inflation Targeting, committee Decision Making and Uncertainty: The case of the Bank of England's MPC," Money Macro and Finance (MMF) Research Group Conference 2004 63, Money Macro and Finance Research Group.
    6. Mark Harris & Paul Levine & Christopher Spencer, 2011. "A decade of dissent: explaining the dissent voting behavior of Bank of England MPC members," Public Choice, Springer, vol. 146(3), pages 413-442, March.
    7. Levy, Gilat, 2004. "Anti-herding and strategic consultation," European Economic Review, Elsevier, vol. 48(3), pages 503-525, June.
    8. Alessandro Riboni & Francisco J. Ruge-Murcia, 2010. "Monetary Policy by Committee: Consensus, Chairman Dominance, or Simple Majority?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 125(1), pages 363-416.
    9. Petra Gerlach-Kristen, 2009. "Outsiders at the Bank of England's MPC," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(6), pages 1099-1115, September.
    10. Blinder, Alan S., 2007. "Monetary policy by committee: Why and how?," European Journal of Political Economy, Elsevier, vol. 23(1), pages 106-123, March.
    11. Jacob K. Goeree & Leeat Yariv, 2011. "An Experimental Study of Collective Deliberation," Econometrica, Econometric Society, vol. 79(3), pages 893-921, May.
    12. Arnab Bhattacharjee & Sean Holly, 2004. "Inflation Targeting, committee Decision Making and Uncertainty: The case of the Bank of England's MPC," Money Macro and Finance (MMF) Research Group Conference 2004 63, Money Macro and Finance Research Group.
    13. repec:dau:papers:123456789/7683 is not listed on IDEAS
    14. Peter Sorensen & Marco Ottaviani, 2000. "Herd Behavior and Investment: Comment," American Economic Review, American Economic Association, vol. 90(3), pages 695-704, June.
    15. Lynch, Damien & Panigirtzoglou, Nikolaos, 2008. "Summary statistics of option-implied probability density functions and their properties," Bank of England working papers 345, Bank of England.
    16. Feddersen, Timothy & Pesendorfer, Wolfgang, 1998. "Convicting the Innocent: The Inferiority of Unanimous Jury Verdicts under Strategic Voting," American Political Science Review, Cambridge University Press, vol. 92(1), pages 23-35, March.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Eijffinger, Sylvester & Mahieu, Ronald & Raes, Louis, 2018. "Inferring hawks and doves from voting records," European Journal of Political Economy, Elsevier, vol. 51(C), pages 107-120.
    2. Stephen Hansen & Michael McMahon, 2016. "First Impressions Matter: Signalling as a Source of Policy Dynamics," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 83(4), pages 1645-1672.
    3. Vidal, Jean-Pierre & Maurin, Vincent, 2012. "Monetary policy deliberations: committee size and voting rules," Working Paper Series 1434, European Central Bank.
    4. Roman Horvath & Marek Rusnak & Katerina Smidkova & Jan Zapal, 2014. "The dissent voting behaviour of central bankers: what do we really know?," Applied Economics, Taylor & Francis Journals, vol. 46(4), pages 450-461, February.

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    More about this item

    Keywords

    Financial Economics;

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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