Did You See What I Saw? Interpreting Others' Forecasts When Their Information Is Unknown

Abstract

We conduct a series of forecasting experiments to examine how people update their beliefs upon observing others' forecasts. We show that people insufficiently update their beliefs, and that this tendency is only partially explained by the better than average effect. We document that subjects frequently issue revised forecasts that exactly equal their initial forecast even though the new information should always change their beliefs. This tendency is most pronounced when subjects learn that another subject observed news that is qualitatively similar ("good" or "bad") to the news that they observed. Our findings suggest that people have difficulty recognizing that others can see news that is qualitatively similar, but distinct, from the news that they observe.

Keywords: Bayesian Updating, Information Aggregation, Forecasting, Rational Expectations, Financial Analysts

JEL Classification: G02, C91, D82