Manipulability of Future-Independent Tests

36 Pages Posted: 15 May 2008

See all articles by Alvaro Sandroni

Alvaro Sandroni

University of Pennsylvania - Department of Economics; Northwestern University - Kellogg School of Management

Wojciech Olszewski

Northwestern University - Department of Economics

Date Written: April 15,2008

Abstract

The difficulties in properly anticipating key economic variables may encourage decision makers to rely on experts' forecasts. Professional forecasters, however, may not be reliable and so their forecasts must be empirically tested. This may induce experts to forecast strategically in order to pass the test. A test can be ignorantly passed if a false expert, with no knowledge of the data generating process, can pass the test. Many tests that are unlikely to reject correct forecasts can be ignorantly passed. Tests that cannot be ignorantly passed do exist, but these tests must make use of predictions contingent on data not yet observed at the time the forecasts are rejected. Such tests cannot be run if forecasters report only the probability of the next period's events on the basis of the actually observed data. This result shows that it is difficult to dismiss false, but strategic, experts who know how theories are tested. This result also shows an important role that can be played by predictions contingent on data not yet observed.

Keywords: Testing Strategic Experts

JEL Classification: D81,C11

Suggested Citation

Sandroni, Alvaro and Olszewski, Wojciech, Manipulability of Future-Independent Tests (April 15,2008). PIER Working Paper No. 08-014, Available at SSRN: https://ssrn.com/abstract=1133107 or http://dx.doi.org/10.2139/ssrn.1133107

Alvaro Sandroni (Contact Author)

University of Pennsylvania - Department of Economics ( email )

Ronald O. Perelman Center for Political Science
133 South 36th Street
Philadelphia, PA 19104-6297
United States

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
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United States
847-491-5461 (Phone)
847-467-1220 (Fax)

Wojciech Olszewski

Northwestern University - Department of Economics ( email )

2003 Sheridan Road
Evanston, IL 60208
United States

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