Which Dreams Come True? Endogeneity, Industry Structure and Forecasting Accuracy

Abstract:     
Forecasts are plentiful. Accurate long-range forecasts are not. But some forecasts are more accurate than others are and a few are very accurate. In this paper, we first explore the case of Moore's Law, a forecast that has proven quite accurate for almost 40 years. We illustrate how expectations that Moore's Law will continue to be accurate actually make it accurate. Based on the insights of this case, we hypothesize that two factors facilitate such self-fulfilling forecasts and so make accuracy more possible. We test these hypotheses on a set of 3142 forecasts about US manufacturing industries during the 1970s. We find that high industry concentration and high control over the predicted variable tend to increase the accuracy of forecasts.

Keywords: Forecasting, endogeneity, industry structure

JEL Classifications: M10

Accepted Paper Series