A case study of expert judgment: Economists' probabilities versus base‐rate model forecasts

Phillip A. Braun*, Ilan Yaniv

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

40 Scopus citations

Abstract

In this case study of economists' forecasts concerning economic downturn, we examine key issues concerning the psychology of prediction and the controversy surrounding the value of expertise in forecasting. We examine when experts' knowledge promotes forecast accuracy and whether biases found in psychological studies (including underutilization of relevant base rates and tendencies to extreme prediction) occur in these economic forecasts. Experts' forecasts were compared to forecasts derived from base‐rate models that relied on the historical frequencies of economic downturns. The performance patterns of the experts and models crossed over the forecast horizon. Experts outperformed models in shorter‐term forecasting, whereas models outperformed experts in longer‐term forecasting. These results highlight the abilities and limits of experts and models in prediction and the sources of their inaccuracy.

Original languageAmerican English
Pages (from-to)217-231
Number of pages15
JournalJournal of Behavioral Decision Making
Volume5
Issue number3
DOIs
StatePublished - 1992
Externally publishedYes

Keywords

  • Base rates
  • Economic forecasting
  • Expertise
  • Human versus statistical prediction
  • Probability judgment

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