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Did You See What I Saw? Interpreting Others’ Forecasts When Their Information Is Unknown

Anthony M Kwasnica, Raisa Velthuis and Jared Williams

Review of Finance, 2019, vol. 23, issue 2, 325-361

Abstract: We conduct a series of forecasting experiments to examine how people update their beliefs upon observing others’ forecasts. Subjects exhibit “cursedness,” that is, a propensity to underestimate the link between others’ forecasts and others’ information, which causes subjects to underreact. The behavior of sophisticated subjects is not affected by the framing of information, but unsophisticated subjects switch from underreaction to overreaction when they are only provided qualitative (rather than quantitative) forecast information. Our results have important implications for the way that financial analysts aggregate information and the way that financial institutions present forecasts to their clients.

Keywords: Forecasts; Information aggregation; Rational expectations; Financial analysts; Cursedness; False consensus effect; Framing effects (search for similar items in EconPapers)
Date: 2019
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Review of Finance is currently edited by Josef ZechnerEditor-Name: Marco Pagano

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Handle: RePEc:oup:revfin:v:23:y:2019:i:2:p:325-361.