Quantifying Qualitative Survey Data: New Insights on the (Ir)Rationality of Firms' Forecasts

Alexandros Botsis, Christoph Görtz and Plutarchos Sakellaris

No 8148, CESifo Working Paper Series from CESifo

Abstract: Using a novel dataset that contains qualitative firm survey data on sales forecasts as well as balance-sheet data on realized sales, we document that only major forecast errors are predictable and display autocorrelation. This result is a particular violation of the Full Information Rational Expectations hypothesis that requires explanation. In contrast, minor forecast errors are neither predictable nor autocorrelated. To arrive at this result, we develop a novel methodology to quantify qualitative survey data on firm forecasts. It is generally applicable when quantitative information, e.g. from balance sheets, is available on the realization of the forecasted variable. Finally, we provide a model of rational inattention that explains our empirical results. Firms optimally limit their degree of attention to information when operating in market environments where information processing is more costly. This results in major forecast errors that are predictable and autocorrelated.

Keywords: survey data; firm data; expectations; forecast errors; rational inattention (search for similar items in EconPapers)
JEL-codes: C53 C83 D22 D84 E32 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-for, nep-mac, nep-ore and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.cesifo.org/DocDL/cesifo1_wp8148.pdf (application/pdf)

Related works:
Working Paper: Quantifying Qualitative Survey Data: New Insights on the (Ir)Rationality of Firms' Forecasts (2023)
Working Paper: Quantifying Qualitative Survey Data: New Insights on the (Ir)Rationality of Firms' Forecasts (2021)
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:ces:ceswps:_8148

Access Statistics for this paper

More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe ().