Strategic coordination in forecasting: An experimental study

Kilian Bizer, Lukas Meub, Till Proeger and Markus Spiwoks

No 195, University of Göttingen Working Papers in Economics from University of Goettingen, Department of Economics

Abstract: Reputational herding has been considered as a driving force behind economic and financial forecasts clustered around consensus values. Strategic coordination can consequently explain poor performances of prediction markets as resulting from the distinct incentives that forecasters face. While this notion has been considered theoretically and empirically, the underlying behavioral working mechanisms have not yet been described. We thus put forth an exploratory experiment on the emergence and robustness of coordination in a forecasting setting implementing contradictory incentives for accurate forecasts and coordination. Forecasts are shown to be inaccurate and biased toward current values. This in turn has subjects aiming at coordination benefits. Predominantly, coordination is achieved through the risk-dominant equilibrium as the game proceeds. Once established, coordination is fairly stable and adds to overall welfare. Our results support the assumption of rational herding as a driving force for predictions of poor accuracy that are systematically biased towards focal points.

Keywords: coordination; incentives; laboratory experiment; reputational herding; sunspot equilibrium (search for similar items in EconPapers)
JEL-codes: C90 D03 D83 G17 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-cbe, nep-exp and nep-for
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cegedp:195

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