The Impact of Prediction Mode on Forecasting Accuracy: The Role of Mental Models

37 Pages Posted: 26 Oct 2022 Last revised: 27 Nov 2023

See all articles by Alex Imas

Alex Imas

University of Chicago - Booth School of Business

Minah Jung

New York University (NYU) - Department of Marketing

Silvia Saccardo

Carnegie Mellon University, Department of Social and Decision Sciences

Joachim Vosgerau

Bocconi University

Date Written: October 25, 2022

Abstract

Forecasters predicting how people change their behavior in response to a treatment
or participating in the intervention often consider a set of alternatives. In
contrast, those who are treated are typically exposed to only one of the treatment
alternatives. For example, managers selecting a wage schedule consider a set of alternative
wages while employees are hired at a given rate. We show that forecasts
made in Joint-prediction mode—which considers a set of alternatives—generate
predictions that expect substantially larger behavioral responses than those made
in Separate-prediction mode—which considers the response to only one treatment
realization in isolation. Results show the latter to be more accurate in matching
people’s actual responses to interventions and treatment changes. Our findings suggest
that the discrepancy in accuracy is due to a disparity in the mental models
used by forecasters and those being treated. We present applications to managerial
decision-making and forecasting of scientific results.

Keywords: Forecasting, Choice under Uncertainty, Prediction

Suggested Citation

Imas, Alex and Jung, Minah and Saccardo, Silvia and Vosgerau, Joachim, The Impact of Prediction Mode on Forecasting Accuracy: The Role of Mental Models (October 25, 2022). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2022-143, Available at SSRN: https://ssrn.com/abstract=4258470 or http://dx.doi.org/10.2139/ssrn.4258470

Alex Imas (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Minah Jung

New York University (NYU) - Department of Marketing ( email )

Henry Kaufman Ctr
44 W 4 St.
New York, NY
United States

Silvia Saccardo

Carnegie Mellon University, Department of Social and Decision Sciences ( email )

Pittsburgh, PA 15213-3890
United States

Joachim Vosgerau

Bocconi University ( email )

Via Sarfatti, 25
Milan, MI 20136
Italy

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