WHY ARE PROFESSIONAL FORECASTERS BIASED - AGENCY VERSUS BEHAVIORAL EXPLANATIONS

Professional forecasters may not simply aim to minimize expected squar ed forecast errors. In models with repeated forecasts the pattern of f orecasts reveals valuable information about the forecasters even befor e the outcome is realized. Rational forecasters will compromise betwee n minimizing errors and mimicking prediction patterns typical of able forecasters. Simple models based on this argument imply that forecasts are biased in the direction of forecasts typical of able forecasters. Our models of strategic bias are rejected empirically as forecasts ar e biased in directions typical of forecasters with large mean squared forecast errors. This observation is consistent with behavioral explan ations of forecast bias.