An Experimental Examination of the Effects of Forecast Bias on Individuals' Use of Forecasted Information
Posted: 6 Nov 1996
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Abstract
We conduct two sets of experiments to examine whether forecast bias affects individuals' willingness to acquire forecasted information and their abilities to use such information, recognizing that the two aspects are intertwined. The results indicate that individuals continue to acquire forecasted information as long as the information has little or no bias. As demand persists, individuals learn to use the information, which enables them to generate superior profit. In contrast, individuals are much less willing to continue acquiring extremely biased forecasts, particularly when predicting prices, perhaps because they perceive that the information is not useful.
JEL Classification: C91, D83
Suggested Citation: Suggested Citation