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

Author

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  • Anthony M Kwasnica
  • Raisa Velthuis
  • Jared Williams

Abstract

We conduct a series of forecasting experiments to examine how people update their beliefs upon observing others’ forecasts. Subjects exhibit “cursedness,” that is, a propensity to underestimate the link between others’ forecasts and others’ information, which causes subjects to underreact. The behavior of sophisticated subjects is not affected by the framing of information, but unsophisticated subjects switch from underreaction to overreaction when they are only provided qualitative (rather than quantitative) forecast information. Our results have important implications for the way that financial analysts aggregate information and the way that financial institutions present forecasts to their clients.

Suggested Citation

  • Anthony M Kwasnica & Raisa Velthuis & Jared Williams, 2019. "Did You See What I Saw? Interpreting Others’ Forecasts When Their Information Is Unknown," Review of Finance, European Finance Association, vol. 23(2), pages 325-361.
    • Handle: RePEc:oup:revfin:v:23:y:2019:i:2:p:325-361.
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    File URL: http://hdl.handle.net/10.1093/rof/rfx052
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    Citations

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    Cited by:

    1. Brice Corgnet & Cary Deck & Mark DeSantis & Kyle Hampton & Erik O. Kimbrough, 2023. "When Do Security Markets Aggregate Dispersed Information?," Management Science, INFORMS, vol. 69(6), pages 3697-3729, June.
    2. Cornaggia, Kimberly & Hund, John & Nguyen, Giang, 2022. "Investor attention and municipal bond returns," Journal of Financial Markets, Elsevier, vol. 60(C).

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