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

37 Pages Posted: 23 Aug 2014 Last revised: 5 Jun 2015

See all articles by Anthony M. Kwasnica

Anthony M. Kwasnica

Smeal College of Business

Raisa Velthuis

Villanova University - Department of Finance

Jared Williams

University of South Florida

Date Written: June 2, 2015

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

Suggested Citation

Kwasnica, Anthony Mark and Velthuis, Raisa and Williams, Jared, Did You See What I Saw? Interpreting Others' Forecasts When Their Information Is Unknown (June 2, 2015). Available at SSRN: https://ssrn.com/abstract=2485476 or http://dx.doi.org/10.2139/ssrn.2485476

Anthony Mark Kwasnica

Smeal College of Business ( email )

Department of Risk Management
332 Business Building
University Park, PA 16802-3306
United States

Raisa Velthuis

Villanova University - Department of Finance ( email )

United States

Jared Williams (Contact Author)

University of South Florida ( email )

Tampa, FL 33620
United States

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