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

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 for...

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Bibliographic Details
Published in:Judgment and decision making 2022-01, Vol.17 (1), p.124-163
Main Authors: Niu, Xiaoxiao, Harvey, Nigel
Format: Article
Language:English
Subjects:
Accuracy
Central banks
Confidence
Decision making
Estimates
Experimental psychology
Experiments
Feedback
Forecasting
Geopolitics
Human performance
Inflation (Finance)
inflation expectationsnakeywords
inflation surveys
judgment noise
Market surveys
Memory
over-forecasting
overconfidence
Polls & surveys
Time series
United Kingdom
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Summary: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 These improvements were preserved even after feedback had been withdrawn, a finding that indicates that they were not produced because feedback had a temporary incentive effect but because it had a more permanent learning effect.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.
ISSN:1930-2975
1930-2975
DOI:10.1017/S1930297500009050