Working Paper: NBER ID: w31607
Authors: Luca Gemmi; Rosen Valchev
Abstract: We find evidence suggesting that surveys of professional forecasters are biased by strategic incentives. First, we find that individual forecasts overreact to idiosyncratic information but underreact to common information. Second, we show that this bias is not present in forecasts data that is not subject to strategic incentives. We show that our evidence is consistent with a model of strategic diversification incentives in forecast reporting. Our results caution against the use of surveys of forecasts as a direct measure of expectations, as this would overestimate the likely deviations from rational expectations, the information precision and the degree of disagreement.
Keywords: surveys; forecasts; strategic incentives; expectations
JEL Codes: C53; D84; E31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| individual forecasts overreact to idiosyncratic information (G17) | individual forecasts underreact to common information (G17) |
| strategic incentives (L21) | systematic errors in forecasts (C53) |
| publicly available information (L86) | reported forecasts underweight (G17) |
| forecaster-specific information (C53) | reported forecasts overreact (G17) |
| strategic incentives (L21) | various puzzles in survey data (C83) |