Context effects in inflation surveys: The influence of additional information and prior questions

Futures & Foresight Science

2022

Self Cite

There are three main ways in which judgmental predictions are expressed: point forecasts; interval forecasts; probability density forecasts. Do these approaches differ solely in terms of their simplicity of elicitation and the detail they provide? We examined error in values of the central tendency extracted from these three types of forecast in a domain in which all of them are used: lay forecasts of inflation. A first experiment using a between-participant design showed that the mean level of forecasts and the bias in them are unaffected by the type of forecast but that judgment noise (and, hence, overall error) is higher in point forecasts than in interval or density forecasts. A second experiment replicated the difference between point and interval forecasts in a within-participant design (of the sort used in inflation surveys) and showed no effect of the order in which different types of forecast are made but revealed that people are more overconfident in interval than in point forecasts. A third experiment showed that volatility in past data increases bias in point but not interval forecasts, and that taking the average of two point forecasts made by an individual reduces judgment noise to the level found in interval forecasting.

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Section: Methodsmentioning

confidence: 99%

Section: Rationale and Hypothesesmentioning

confidence: 99%

Point, interval, and density forecasts: Differences in bias, judgment noise, and overall accuracy

Futures & Foresight Science

2022

Self Cite

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“…One reason for this is that people generally expect the inflation rate (as distict from prices) to go up, even when it does not do so. Niu and Harvey (2021) showed that when separate groups of people estimated current inflation and inflation for the next year, their mean estimates for the two years were not significantly different. However, when the same group of people made estimates for both years, their mean estimate for the next year was significantly higher than their mean estimate for the current year.…”

Section: Inflation Expectationsmentioning

confidence: 95%

“…However, in our experiments, performance-related incentives were not asymmetrical. Thus it is more likely that, as Niu and Harvey (2021) suggest, people expect inflation to be more likely to rise than fall. This may be a risk-amplification effect of using the availability heuristic: media coverage of potential and actual rises in inflation is more extensive than corresponding coverage of falls in inflation.…”

Section: Inflation Forecastsmentioning

confidence: 99%

Outcome feedback reduces over-forecasting of inflation and overconfidence in forecasts

2022

Judgm. decis. mak.

Self Cite

Survey respondents over-forecast inflation: they expect it to be higher than it turns out to be. Furthermore, people are generally overconfident in their forecasts. In two experiments, we show that providing outcome feedback that informs people of the actual level of the inflation that they have forecast reduces both over-forecasting and overconfidence in forecasts. These improvements were preserved even after feedback had been withdrawn, a finding that indicates that they were not produced because feedback had a temporary incentive effect but because it had a more permanent learning effect. However, providing forecasters with more outcome feedback did not have a greater effect. Feedback appears to provide people with information about biases in their judgments and, once they have received that information, no additional advantage is obtained by giving it to them again. Reducing over-forecasting also had no clear effect on overall error. This was because providing outcome feedback after every judgment also affected the noise or random error in forecasts, increasing it by a sufficient amount to cancel out the benefits provided by the reduction in over-forecasting.

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“…More often, lay expectations are less accurate and much more heterogeneous than those of experts (e.g., Mankiw et al, 2003;Palardy and Ovaska, 2015). Research into possible causes of the differences in accuracy has been reviewed by Niu and Harvey (2022a).…”

Section: Introductionmentioning

confidence: 99%

Are Lay Expectations of Inflation Based on Recall of Specific Prices? If so, How and Under What Conditions?

2023

Preprint