Forecaster (Mis-)Behavior

30 Pages Posted: 1 May 2018

See all articles by Tobias Broer

Tobias Broer

Stockholm University; Centre for Economic Policy Research (CEPR)

Alexandre Kohlhas

Stockholm University - Institute for International Economic Studies (IIES)

Date Written: April 2018

Abstract

Professional forecasts are often used to gauge the expectations of households and firms. Recently, the average of such forecasts have been argued to support rational expectation formation with noisy private information. We document that individual forecasts of US GDP and inflation in the Survey of Professional Forecasters overrespond to both private and public information, contradicting, prima facie, the assumption of noisy rational expectation formation. We generalize two alternative models of forecaster behavior that focus on strategic diversification and behavioral overconfidence, respectively, to dynamic environments with noisy private information. We find that both models predict overresponses, but only the overconfidence model is simultaneously consistent with a substantial overreaction to public information.

Keywords: bounded rationality, Forecaster behavior, Rational Expectations

JEL Classification: C53, D83, D84

Suggested Citation

Broer, Tobias and Kohlhas, Alexandre, Forecaster (Mis-)Behavior (April 2018). CEPR Discussion Paper No. DP12898, Available at SSRN: https://ssrn.com/abstract=3171166

Tobias Broer (Contact Author)

Stockholm University ( email )

Universitetsvägen 10
Stockholm, Stockholm SE-106 91
Sweden

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Alexandre Kohlhas

Stockholm University - Institute for International Economic Studies (IIES) ( email )

Stockholm, SE-10691
Sweden

HOME PAGE: http://alexandrekohlhas.com

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

Paper statistics

Downloads
0
Abstract Views
300
PlumX Metrics