Business-Level Expectations and Uncertainty

52 Pages Posted: 22 Mar 2021 Last revised: 20 Mar 2022

See all articles by Nicholas Bloom

Nicholas Bloom

Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

Steven J. Davis

University of Chicago; National Bureau of Economic Research (NBER); Hoover Institution

Lucia Foster

U.S. Census Bureau - Center for Economic Studies

Brian Lucking

Charles River Associates (CRA)

Scott Ohlmacher

University of Maryland

Itay Saporta-Eksten

Tel Aviv University

Multiple version iconThere are 3 versions of this paper

Date Written: December 2020

Abstract

The Census Bureau’s 2015 Management and Organizational Practices Survey (MOPS) utilized innovative methodology to collect five-point forecast distributions over own future shipments, employment, and capital and materials expenditures for 35,000 U.S. manufacturing plants. First and second moments of these plant-level forecast distributions covary strongly with first and second moments, respectively, of historical outcomes. The first moment of the distribution provides a measure of business’ expectations for future outcomes, while the second moment provides a measure of business’ subjective uncertainty over those outcomes. This subjective uncertainty measure correlates positively with financial risk measures. Drawing on the Annual Survey of Manufactures and the Census of Manufactures for the corresponding realizations, we find that subjective expectations are highly predictive of actual outcomes and, in fact, more predictive than statistical models fit to historical data. When respondents express greater subjective uncertainty about future outcomes at their plants, their forecasts are less accurate. However, managers supply overly precise forecast distributions in that implied confidence intervals for sales growth rates are much narrower than the distribution of actual outcomes. Finally, we develop evidence that greater use of predictive computing and structured management practices at the plant and a more decentralized decision-making process (across plants in the same firm) are associated with better forecast accuracy.

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Suggested Citation

Bloom, Nicholas and Davis, Steven J. and Foster, Lucia and Lucking, Brian and Ohlmacher, Scott and Saporta-Eksten, Itay, Business-Level Expectations and Uncertainty (December 2020). NBER Working Paper No. w28259, Available at SSRN: https://ssrn.com/abstract=3808466

Nicholas Bloom (Contact Author)

Stanford University - Department of Economics ( email )

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Steven J. Davis

University of Chicago ( email )

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Hoover Institution

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Lucia Foster

U.S. Census Bureau - Center for Economic Studies ( email )

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Brian Lucking

Charles River Associates (CRA) ( email )

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Scott Ohlmacher

University of Maryland

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United States

Itay Saporta-Eksten

Tel Aviv University

Ramat Aviv
Tel-Aviv, 6997801
Israel

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