Strategic coordination in forecasting – An experimental study

Lukas Meub, Till Proeger, Kilian Bizer and Markus Spiwoks

Finance Research Letters, 2015, vol. 13, issue C, 155-162

Abstract: While reputational herding has been shown to contribute to poor economic forecasting, the underlying behavioral mechanisms have not yet been empirically investigated. We run a forecasting experiment with contradictory incentives for accuracy and coordination, finding subjects’ forecasts to be inaccurate and driven by the coordination motive. Coordination is achieved through the salient, risk-dominant equilibrium, i.e. merely forecasting the current values. Subjects succeeding in coordinating earn significantly more than those striving for accuracy. Our results emphasize that reputational herding should be considered as a driving force for persistently poor prediction accuracy and systematically biased forecasts towards consensus values.

Keywords: Forecasting; Laboratory experiment; Reputational herding; Sunspot coordination (search for similar items in EconPapers)
JEL-codes: C90 D03 D83 G17 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:13:y:2015:i:c:p:155-162

DOI: 10.1016/j.frl.2015.02.001

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