Forecasts from biased experts: a “meta‐credibility” problem

Abstract

Purpose – In forecasting unknown quantities, risk and finance decision makers often rely on one or more biased experts, statistical specialists representing parties with an interest in the decision maker's final forecast. This problem arises in a variety of contexts, and the decision maker may represent a corporate enterprise, rating agency, government regulator, etc. The purpose of the paper is to assist decision makers, experts, and others to have a better understanding of the dynamics of the problem, and to adopt strategies and practices that enhance efficiency.Design/methodology/approach – The problem is formulated as a two‐person, non‐cooperative Bayesian game with the decision maker and one expert as players, and perfect Bayesian equilibrium solutions are identified. Then the analysis is extended to variations of the game in which the expert's loss function is not common knowledge, and in which there are multiple experts.Findings – In the struggle for information between the decision maker and the e...