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Combining Combined Forecasts: a Network Approach

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  • Marcos R. Fernandes

Abstract

This study investigates the practice of experts aggregating forecasts before informing a decision-maker. The significance of this subject extends to various contexts where experts inform their assessments to a decision-maker following discussions with peers. My findings show that, irrespective of the information structure, aggregation rules introduce no bias to decision-making in expected terms. Nevertheless, the concern revolves around variance. In situations where experts are equally precise, and pair-wise correlation of forecasts is the same across all pairs of experts, the network structure plays a pivotal role in decision-making variance. For classical structures, I show that star networks exhibit the highest variance, contrasting with $d$-regular networks that achieve zero variance, emphasizing their efficiency. Additionally, by employing the Poisson random graph model under the assumptions of a large network size and a small connection probability, the results indicate that both the expected Network Bias and its variance converge to zero as the network size becomes sufficiently large. These insights enhance the understanding of decision-making under different information, network structures and aggregation rules. They enrich the literature on combining forecasts by exploring the effects of prior network communication on decision-making.

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  • Marcos R. Fernandes, 2024. "Combining Combined Forecasts: a Network Approach," Papers 2406.13749, arXiv.org.
  • Handle: RePEc:arx:papers:2406.13749
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    References listed on IDEAS

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    1. T Renee Bowen & Danil Dmitriev & Simone Galperti, 2023. "Learning from Shared News: When Abundant Information Leads to Belief Polarization," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 138(2), pages 955-1000.
    2. Levy, Gilat & Razin, Ronny, 2021. "A maximum likelihood approach to combining forecasts," LSE Research Online Documents on Economics 104116, London School of Economics and Political Science, LSE Library.
    3. Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1992. "A Theory of Fads, Fashion, Custom, and Cultural Change in Informational Cascades," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 992-1026, October.
    4. Genre, Véronique & Kenny, Geoff & Meyler, Aidan & Timmermann, Allan, 2013. "Combining expert forecasts: Can anything beat the simple average?," International Journal of Forecasting, Elsevier, vol. 29(1), pages 108-121.
    5. Levy, Gilat & Razin, Ronny, 2021. "A Maximum Likelihood Approach to Combining Forecasts," Theoretical Economics, Econometric Society, vol. 16(1), January.
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