Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/93245
Authors: 
Bizer, Kilian
Meub, Lukas
Proeger, Till
Spiwoks, Markus
Year of Publication: 
2014
Series/Report no.: 
Discussion Papers, Center for European Governance and Economic Development Research 195
Abstract: 
Reputational herding has been considered as a driving force behind economic and financial forecasts clustered around consensus values. Strategic coordination can consequently explain poor performances of prediction markets as resulting from the distinct incentives that forecasters face. While this notion has been considered theoretically and empirically, the underlying behavioral working mechanisms have not yet been described. We thus put forth an exploratory experiment on the emergence and robustness of coordination in a forecasting setting implementing contradictory incentives for accurate forecasts and coordination. Forecasts are shown to be inaccurate and biased toward current values. This in turn has subjects aiming at coordination benefits. Predominantly, coordination is achieved through the risk-dominant equilibrium as the game proceeds. Once established, coordination is fairly stable and adds to overall welfare. Our results support the assumption of rational herding as a driving force for predictions of poor accuracy that are systematically biased towards focal points.
Subjects: 
coordination
incentives
laboratory experiment
reputational herding
sunspot equilibrium
JEL: 
C90
D03
D83
G17
Document Type: 
Working Paper

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