Manipulability of future-independent tests

Wojciech Olszewski*, Alvaro Sandroni

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

30 Scopus citations

Abstract

The difficulties in properly anticipating key economic variables may encourage decision makers to rely on experts' forecasts. Professional forecasters, however, may not be reliable and so their forecasts must be empirically tested. This may induce experts to forecast strategically in order to pass the test. A test can be ignorantly passed if a false expert, with no knowledge of the data-generating process, can pass the test. Many tests that are unlikely to reject correct forecasts can be ignorantly passed. Tests that cannot be ignorantly passed do exist, but these tests must make use of predictions contingent on data not yet observed at the time the forecasts are rejected. Such tests cannot be run if forecasters report only the probability of the next period's events on the basis of the actually observed data. This result shows that it is difficult to dismiss false, but strategic, experts who know how theories are tested. This result also shows an important role that can be played by predictions contingent on data not yet observed.

Original languageEnglish (US)
Pages (from-to)1437-1466
Number of pages30
JournalEconometrica
Volume76
Issue number6
DOIs
StatePublished - Nov 2008

Keywords

  • Manipulability
  • Strategic experts
  • Testing

ASJC Scopus subject areas

  • Economics and Econometrics

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