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Why Are Professional Forecasters Biased? Agency versus Behavioral Explanations

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  • Ehrbeck, Tilman
  • Waldmann, Robert

Abstract

Professional forecasters may not simply aim to minimize expected squared forecast errors. In models with repeated forecasts, the pattern of forecasts reveals valuable information about the forecasters even before the outcome is realized. Rational forecasters will compromise between minimizing errors and mimicking prediction patterns typical of able forecasters. Simple models based on this argument imply that forecasts are biased in the direction of forecasts typical of able forecasters. The authors' models of strategic bias are rejected empirically as forecasts are biased in directions typical of forecasters with large mean squared forecast errors. This observation is consistent with behavioral explanations of forecast bias. Copyright 1996, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Bibliographic Info

Article provided by MIT Press in its journal Quarterly Journal of Economics.

Volume (Year): 111 (1996)
Issue (Month): 1 (February)
Pages: 21-40

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Handle: RePEc:tpr:qjecon:v:111:y:1996:i:1:p:21-40

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Web page: http://mitpress.mit.edu/journals/

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  1. Were economists wrong because of economic incentives ?
    by Robert in angry bear on 2011-02-08 02:20:00
  2. Department of "Huh?"
    by Brad DeLong in Grasping Reality with the Invisible Hand on 2007-03-08 23:53:05
  3. Matthew Yglesias writes

    Ragu Rajan ... his explanation of why

    by Robert in Robert's Stochastic Thoughts on 2011-02-07 18:30:00
  4. The fighting punditariat
    by The Economist in Free Exchange on 2007-03-09 21:33:00
  5. Copying It's not Just for Students any More
    by Robert in Robert's Stochastic Thoughts on 2014-08-12 12:17:00
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