Manipulability of Future-Independent Tests
The difficulties in properly anticipating key economic variables may encourage decision makers to rely on experts’ forecasts. Professional forecasters, however, may not be reliable and so their forecasts must be empirically tested. This may induce experts to forecast strategically in order to pass the test. A test can be ignorantly passed if a false expert, with no knowledge of the data generating process, can pass the test. Many tests that are unlikely to reject correct forecasts can be ignorantly passed. Tests that cannot be ignorantly passed do exist, but these tests must make use of predictions contingent on data not yet observed at the time the forecasts are rejected. Such tests cannot be run if forecasters report only the probability of the next period’s events on the basis of the actually observed data. This result shows that it is difficult to dismiss false, but strategic, experts who know how theories are tested. This result also shows an important role that can be played by predictions contingent on data not yet observed.
|Date of creation:||15 Apr 2008|
|Date of revision:|
|Contact details of provider:|| Postal: 3718 Locust Walk, Philadelphia, PA 19104|
Web page: http://economics.sas.upenn.edu/pier
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Alvaro Sandroni, 2003. "The reproducible properties of correct forecasts," International Journal of Game Theory, Springer;Game Theory Society, vol. 32(1), pages 151-159, December.
- Morgan, J. & Stocken, P., 1998.
"An Analysis of Stock Recommendations,"
204, Princeton, Woodrow Wilson School - Public and International Affairs.
- Alvaro Sandroni & Wojciech Olszewski, 2008.
"Strategic Manipulation of Empirical Tests,"
PIER Working Paper Archive
08-015, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
- Keane, Michael P & Runkle, David E, 1990. "Testing the Rationality of Price Forecasts: New Evidence from Panel Data," American Economic Review, American Economic Association, vol. 80(4), pages 714-35, September.
- Eddie Dekel & Yossi Feinberg, 2006.
"Non-Bayesian Testing of a Stochastic Prediction,"
Review of Economic Studies,
Oxford University Press, vol. 73(4), pages 893-906.
- P. Frevert, 1971. "Note," Review of Economic Studies, Oxford University Press, vol. 38(2), pages 269-270.
- Marco Ottaviani & Peter Norman Sørensen, 2004.
"The Strategy of Professional Forecasting,"
FRU Working Papers
2004/05, University of Copenhagen. Department of Economics. Finance Research Unit.
- Itzhak Gilboa & David Schmeidler, 1989.
"Maxmin Expected Utility with Non-Unique Prior,"
- Drew Fudenberg & David K. Levine, 1996.
"An Easier Way to Calibrate,"
Levine's Working Paper Archive
2059, David K. Levine.
- David Laster & Paul Bennett & In Sun Geoum, 1999. "Rational Bias in Macroeconomic Forecasts," The Quarterly Journal of Economics, Oxford University Press, vol. 114(1), pages 293-318.
- LeRoy, Stephen F & Singell, Larry D, Jr, 1987. "Knight on Risk and Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 95(2), pages 394-406, April.
- Yossi Feinberg & Colin Stewart, 2008.
"Testing Multiple Forecasters,"
Econometric Society, vol. 76(3), pages 561-582, 05.
- Trueman, Brett, 1988. " A Theory of Noise Trading in Securities Markets," Journal of Finance, American Finance Association, vol. 43(1), pages 83-95, March.
- Nabil I. Al-Najjar & Jonathan Weinstein, 2006.
"Comparative Testing of Experts,"
Levine's Working Paper Archive
321307000000000590, David K. Levine.
- Shmaya, Eran, 2008. "Many inspections are manipulable," Theoretical Economics, Econometric Society, vol. 3(3), September.
- Vladimir Vovk & Glenn Shafer, 2005. "Good randomized sequential probability forecasting is always possible," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 67(5), pages 747-763.
- Lovell, Michael C, 1986. "Tests of the Rational Expectations Hypothesis," American Economic Review, American Economic Association, vol. 76(1), pages 110-24, March.
- Alvaro Sandroni & Wojciech Olszewski, 2008. "Falsifiability," PIER Working Paper Archive 08-016, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
- Sandroni, Alvaro & Olszewski, Wojciech, 2007. "Contracts and uncertainty," Theoretical Economics, Econometric Society, vol. 2(1), pages 1-13, March.
- Michael P. Keane & David E. Runkle, 1998. "Are Financial Analysts' Forecasts of Corporate Profits Rational?," Journal of Political Economy, University of Chicago Press, vol. 106(4), pages 768-805, August.
When requesting a correction, please mention this item's handle: RePEc:pen:papers:08-014. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dolly Guarini)
If references are entirely missing, you can add them using this form.