The Strategy of Professional Forecasting

31 Pages Posted: 27 Mar 2011

See all articles by Marco Ottaviani

Marco Ottaviani

Bocconi University - Department of Economics

Peter Norman Sorensen

University of Copenhagen - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: October 22, 2001

Abstract

This paper develops and compares two theories of strategic behavior of professional forecasters. The first theory posits that forecasters compete in a forecasting contest with pre-specified rules. In equilibrium of a winner-take-all contest, forecasts are excessively differentiated. According to the alternative reputational cheap talk theory, forecasters aim at convincing the market that they are well informed. The market evaluates their forecasting talent on the basis of the forecasts and the realized state. If the market has naive views on forecasters' behavior, forecasts are biased toward the prior mean. Otherwise, equilibrium forecasts are unbiased but imprecise.

Keywords: Forecasting, Contest, Reputation, Cheap Talk

JEL Classification: D82, D83, G20, J30

Suggested Citation

Ottaviani, Marco and Sorensen, Peter Norman, The Strategy of Professional Forecasting (October 22, 2001). Univ. of Copenhagen Dept. of Economics Discussion Paper No. 01-09, Available at SSRN: https://ssrn.com/abstract=1792484 or http://dx.doi.org/10.2139/ssrn.1792484

Marco Ottaviani

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy

Peter Norman Sorensen (Contact Author)

University of Copenhagen - Department of Economics ( email )

Oster Farimagsgade 5
Building 26
Copenhagen K, 1353
Denmark
+45 35 32 3056 (Phone)

HOME PAGE: http://www.econ.ku.dk/sorensen

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
50
Abstract Views
819
PlumX Metrics