Post financial forecasting game theory and decision making

Ziyu Song and Shan Wu

Finance Research Letters, 2023, vol. 58, issue PA

Abstract: This paper examines the post-forecasting issue where predictions influence behavior and render original forecasts obsolete. Using game-theory models, we analyze two player types: econometricians with predictions and normal individuals. Our study suggests that late-moving individuals should not participate, while early-mover probabilities in Bayesian games are beneficial. Improved prediction accuracy benefits econometricians but has little impact on normal individuals. Obtaining prediction information incurs a positive cost, overlooked with high accuracy. These findings, supported by preference, uncertainty, information price, and market efficiency analyses, have important implications for investors using forecasting information in financial markets.

Keywords: Post-forecasting issue; Stochastic game; Prediction accuracy; Information cost (search for similar items in EconPapers)
JEL-codes: C73 D70 G11 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:58:y:2023:i:pa:s1544612323006608

DOI: 10.1016/j.frl.2023.104288

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