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Strategic judgment: its game-theoretic foundations,its econometric elicitation

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  • Emilio Zanetti Chini

Abstract

We provide a new frequentist methodology that detects forecasting bias due to strategic interaction. This is based on a new environment, named Scoring Structure, where a Forecast User interacts with a Forecast Producer and Reality. A formal test for the null hypothesis of linearity in Scoring Structure is introduced. Linearity implies that forecasts are strategically coherent with evaluations and vice-versa. The new test has good small-sample properties and behaves consistently with theoretical requirements. We illustrate the use of the Scoring Structure and the coherence test via two case studies on the assessment of the probability of recessions for the U.S. economy and the evaluation of Norges Bank's Fan Charts of Output Gap. These support the endemic nature of the strategic judgment in Macroeconomics. Finally, we discuss the economic interpretation of the results obtained by our approach.

Suggested Citation

  • Emilio Zanetti Chini, 2019. "Strategic judgment: its game-theoretic foundations,its econometric elicitation," Working Papers in Public Economics 190, Department of Economics and Law, Sapienza University of Roma.
    • Handle: RePEc:sap:wpaper:wp190
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    References listed on IDEAS

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    More about this item

    Keywords

    Business Cycle; Predictive Density; Forecast Evaluation; Coherence Testing; Scoring Rules and Structures;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C44 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Operations Research; Statistical Decision Theory
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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