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Forecast Dispersion in Finite-Player Forecasting Games

Author

Listed:
  • Kim Jin Yeub

    (Department of Economics, University of Nebraska-Lincoln, 730 N. 14th Street, NE 68588-0489Lincoln, United States of America)

  • Shim Myungkyu

    (School of Economics, Sogang University, 35 Baekbeom-Ro, Mapo-Gu, Seoul04107, South Korea)

Abstract

We study forecast dispersion in a finite-player forecasting game modeled as an aggregate game with payoff externalities and dispersed information. In the game, each agent cares about being accurate as well as about the distance of his forecast from the average forecast; and with a finite number of agents, the agents can strategically influence that average. We show that the finiteness of the number of agents weakens the strategic effect induced by the underlying preference. We find that when each agent prefers to be close to the average forecast, the presence of strategic manipulation of the average forecast contributes to a higher forecast dispersion; when instead each agent wants to be distinctive from the average, the opposite is true.

Suggested Citation

  • Kim Jin Yeub & Shim Myungkyu, 2019. "Forecast Dispersion in Finite-Player Forecasting Games," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 19(1), pages 1-6, January.
    • Handle: RePEc:bpj:bejtec:v:19:y:2019:i:1:p:6:n:8
    DOI: 10.1515/bejte-2017-0023
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    References listed on IDEAS

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    1. Martimort, David & Stole, Lars, 2012. "Representing equilibrium aggregates in aggregate games with applications to common agency," Games and Economic Behavior, Elsevier, vol. 76(2), pages 753-772.
    2. Patton, Andrew J. & Timmermann, Allan, 2010. "Why do forecasters disagree? Lessons from the term structure of cross-sectional dispersion," Journal of Monetary Economics, Elsevier, vol. 57(7), pages 803-820, October.
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    Cited by:

    1. Jin Yeub Kim & Myungkyu Shim, 2022. "Information Inequality and the Role of Public Information," Korean Economic Review, Korean Economic Association, vol. 38, pages 207-230.
    2. Jin Yeub Kim & Yongjun Kim & Myungkyu Shim, 2023. "Do Financial Analysts Herd?," Global Economic Review, Taylor & Francis Journals, vol. 52(3), pages 202-219, July.

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    Keywords

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    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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