Are grade expectations rational? A classroom experiment.

This study examines students' expectations about their final grade. An attempt is made to determine whether students form expectations rationally. Expectations in economics, rational or otherwise, carry valuable information and have important implications in terms of both teaching effectiveness and the role of grades as an incentive structure for students. This study focuses on the predictors of the students' final grade as they relate to their expectations. Our findings indicate that on average, the rational expectations (REs) framework does not accurately describe students' grade expectations. Expectations, although sluggish, improve as students gather information on their actual performance during the semester. Even though overconfidence is the norm, there could be some students who follow closely the REs hypothesis. [ABSTRACT FROM PUBLISHER]