Comparing Predictions and Outcomes

Theory and Application to Income Changes

Research output: Working paperDiscussion paperOther research output

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Abstract

Household surveys often elicit respondents' intentions or predictions of future outcomes. The survey questions may ask respondents to choose among a selection of (ordered) response categories. If panel data or repeated cross-sections are available, predictions may be compared with realized outcomes. The categorical nature of the predictions data, however, complicates this comparison. Generalizing previous findings on binary intentions data, we derive bounds on features of the empirical distribution of realized outcomes under the "best-case" hypothesis that respondents have rational expectations and that reported expectations are best predictions of future outcomes. These bounds are shown to depend on the assumed model of how respondents form their "best prediction" when forced to choose among (ordered) categories. An application to data on income change expectations and realized income changes illustrates how alternative response models may be used to test the best-case hypothesis.
Original languageEnglish
Place of PublicationTilburg
PublisherEconometrics
Number of pages27
Volume1997-45
Publication statusPublished - 1997

Publication series

NameCentER Discussion Paper
Volume1997-45

Fingerprint

Prediction
Income
Empirical distribution
Household survey
Cross section
Rational expectations
Panel data

Keywords

  • predictions
  • categorical data
  • loss function
  • income growth

Cite this

Das, J. W. M., Dominitz, J., & van Soest, A. H. O. (1997). Comparing Predictions and Outcomes: Theory and Application to Income Changes. (CentER Discussion Paper; Vol. 1997-45). Tilburg: Econometrics.
Das, J.W.M. ; Dominitz, J. ; van Soest, A.H.O. / Comparing Predictions and Outcomes : Theory and Application to Income Changes. Tilburg : Econometrics, 1997. (CentER Discussion Paper).
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Das, JWM, Dominitz, J & van Soest, AHO 1997 'Comparing Predictions and Outcomes: Theory and Application to Income Changes' CentER Discussion Paper, vol. 1997-45, Econometrics, Tilburg.

Comparing Predictions and Outcomes : Theory and Application to Income Changes. / Das, J.W.M.; Dominitz, J.; van Soest, A.H.O.

Tilburg : Econometrics, 1997. (CentER Discussion Paper; Vol. 1997-45).

Research output: Working paperDiscussion paperOther research output

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AB - Household surveys often elicit respondents' intentions or predictions of future outcomes. The survey questions may ask respondents to choose among a selection of (ordered) response categories. If panel data or repeated cross-sections are available, predictions may be compared with realized outcomes. The categorical nature of the predictions data, however, complicates this comparison. Generalizing previous findings on binary intentions data, we derive bounds on features of the empirical distribution of realized outcomes under the "best-case" hypothesis that respondents have rational expectations and that reported expectations are best predictions of future outcomes. These bounds are shown to depend on the assumed model of how respondents form their "best prediction" when forced to choose among (ordered) categories. An application to data on income change expectations and realized income changes illustrates how alternative response models may be used to test the best-case hypothesis.

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Das JWM, Dominitz J, van Soest AHO. Comparing Predictions and Outcomes: Theory and Application to Income Changes. Tilburg: Econometrics. 1997. (CentER Discussion Paper).