Some Evidence on The Accuracy and Rationality of Businessmen's Forecasts: How Well Do Western Australian Businessmen Forecast?*

Abstract

The accuracy of some businessmen's forecasts are conparec with subsequent outturns. The data set consists of responses to a quarterly survey of business opinion in western Australia. The businessmen's perceptions of the near future and the recent past for twenty-four variables are scaled quantitatively and compared. The measures of forecasting accuracy used are the mean-absolute-error, the median-absolute-error and the root-mean- squared-error, The predictions are less accurate than those generated by a random walk. The forecasts were also tested for rationality. For data of the type used here it is shown that orthogonal least squares is to be preferred to ordinary least squares in testing for rationality. Both estimation techniques lead to the rejection of rationality.