Separating Accuracy from Forecast Certainty: A Modified Miscalibration Measure

Doron Sonsino, Yaron Lahav and Amir Levkowitz

Chapter 12 in Behavioral Finance:A Novel Approach, 2020, pp 283-301 from World Scientific Publishing Co. Pte. Ltd.

Abstract: Interval forecasting tasks are commonly used to test for forecast-overconfidence. Pointing at deficiencies of the methodology, we advance a modified assignment, where subjects provide point predictions and assess the likelihood of return falling within small intervals around their estimates. The difference between the subjective likelihood assessments and the realized hit rates is advanced as an improved forecast-overprecision measure. Over three incentivized studies, 163 of 195 participants overestimate their hit rates, and a closer look at the data illustrates that inaccuracy and excessive certainty act as distinct sources of overprecision. Applications where the adapted task may prove more powerful than standard interval forecasting are discussed.

Keywords: Analysts Recommendations; Behavioral Biases; Behavioral Economics; Behavioral Finance; Board of Directors; Compensation; Compensation Committee; Control; Coronavirus; Corporate Governance; COVID-19; Decision Making; Disposition Effect; Earnings Management; Elections; Emotions; Financial Crises; Financial Market Anomalies; Financial Markets; Forecast-Accuracy; Gender Differences; Heuristics; Interval Forecasting; Investment; Investor Horizon; Investors' Beliefs; IPO Under-Pricing; Life Expectancy; Myopia; Overconfidence; Pensions Industry; Policy Reforms; Polls; Portfolio Risk; Prediction Markets; Regulation; Stock Price Drifts; Time Preferences (search for similar items in EconPapers)
JEL-codes: G3 G30 G4 G41 (search for similar items in EconPapers)
Date: 2020
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.worldscientific.com/doi/pdf/10.1142/9789811229251_0012 (application/pdf)
https://www.worldscientific.com/doi/abs/10.1142/9789811229251_0012 (text/html)
Ebook Access is available upon purchase.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:wschap:9789811229251_0012

Ordering information: This item can be ordered from

Access Statistics for this chapter

More chapters in World Scientific Book Chapters from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().