The Rationality of Farmland Price Expectations for Measures of Central Tendency

<p dir="ltr">Farmland price expectations play an important role in price discovery, investing, and lending. Previous studies find that farmland price expectations collected through surveys are often not rational (biased or inefficient), based on tests that assume respondents report the mean of their distribution of expectations. However, the exact statistical quantity that respondents report is often unknown. Using price expectations from the <i>Purdue Farmland Values and Cash Rents Survey</i>, 1980-2023, we examine the degree to which respondents’ price expectations may be considered rational at the mean, median, or mode, as well as convex combinations thereof. We find that farmland price expectations are mean-rational in only half of the cases. Yet, farmland price expectations are mode-rational in roughly 72% of cases, including those that are both mean and mode rational. Thus, all cases are rational at either the mean, mode, or both, and our results suggest that respondents likely report the mode or “most likely” value.</p>