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The Effect of Foreign Competition on Forecasting Bias

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  • Raymond Fisman

    (Columbia University and NBER.)

Abstract

This paper studies the effect of foreign competition on the extent of forecasting bias. I focus on two biases often described in the behavioral economics literature: overoptimism and excessive belief in trends. Using data from firm-level surveys in five African countries, I show that firms that do not face foreign competition generate forecasts of sales growth that have greater trend and optimism biases than firms that have foreign competitors. I further provide evidence that these erroneous forecasts have real effects on firms' inventory management. © 2006 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Suggested Citation

  • Raymond Fisman, 2006. "The Effect of Foreign Competition on Forecasting Bias," The Review of Economics and Statistics, MIT Press, vol. 88(1), pages 61-68, February.
  • Handle: RePEc:tpr:restat:v:88:y:2006:i:1:p:61-68
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    Cited by:

    1. Sima M. Fortsch & Jeong Hoon Choi & Elena A. Khapalova, 2022. "Competition can help predict sales," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 41(2), pages 331-344, March.

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