Forecaster (Mis-)Behavior

Tobias Broer and Alexandre Kohlhas

No 12898, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Professional forecasts are often used to gauge the expectations of households and firms. Recently, the average of such forecasts have been argued to support rational expectation formation with noisy private information. We document that individual forecasts of US GDP and inflation in the Survey of Professional Forecasters overrespond to both private and public information, contradicting, prima facie, the assumption of noisy rational expectation formation. We generalize two alternative models of forecaster behavior that focus on strategic diversification and behavioral overconfidence, respectively, to dynamic environments with noisy private information. We find that both models predict overresponses, but only the overconfidence model is simultaneously consistent with a substantial overreaction to public information.

Keywords: Forecaster behavior; Rational expectations; Bounded rationality (search for similar items in EconPapers)
JEL-codes: C53 D83 D84 (search for similar items in EconPapers)
Date: 2018-04
New Economics Papers: this item is included in nep-upt
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Citations: View citations in EconPapers (5)

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Working Paper: Forecaster (Mis-)Behavior (2019)
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