Overprecision in the Survey of Professional Forecasters

Keywords: overconfidence, economic forecasts, policy, cognitive bias, behavioral economics, judgment, decision making

Abstract: Every decision depends on a forecast of its consequences. We examine the calibration of the single longest and most complete forecasting project. The Survey of Professional Forecasters has, since 1968, elicited predictions of key economic indicators such as unemployment, inflation, and economic growth. Here, we test the accuracy of those forecasts (n = 12,359) and measure the degree to which they fall victim to overconfidence, both overoptimism and overprecision. We find forecasts are overly precise; forecasters report 53% confidence in the accuracy of their forecasts, but are correct only 28% of the time. By contrast, forecasts show little evidence of optimistic bias. We employ a novel split sample methodology in analyzing archival data, creating exploration and validation halves.