NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Rogier J.D. Potter van Loon

Erasmus School of Economics
Erasmus University Rotterdam
Burgemeester Oudlaan 50
PO Box 1738, 3000 DR
Rotterdam, The Netherlands

E-Mail: pottervanloon@ese.eur.nl

NBER Working Papers and Publications

June 2013Wall Street vs. Main Street: An Evaluation of Probabilities
with Robin L. Lumsdaine: w19103
This paper challenges recent conventional wisdom of a divide between Main Street (the average American consumer) and Wall Street (financial market participants). The views of survey respondents regarding the likelihood of stock index returns exceeding specific thresholds are compared to market views indicated by index options with strikes at analogous thresholds. The econometric specification explicitly addresses some important impediments to using elicited probabilities from survey data. We confirm that Main Street views track Wall Street views, although the association is not one-for one. We find a closer association for those demonstrating a better understanding of the laws of probability.
 
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