Why Forecasters Disagree? A Global Games Approach

Abstract

We study forecast dispersion for a class of finite-player forecasting games that feature a coordination motive and dispersed information. In doing so, we isolate strategic interactions among forecasters that originate in games with a finite set of players. We first show that the finite-player strategic incentive goes in the opposite direction to the underlying coordination motive. Hence, forecast dispersion can be misrepresented if finite-player strategic interactions are neglected. We then explore the role of dispersed information on forecast dispersion and demonstrate that the effect of more precise private information on increasing dispersion is more likely in finite-player games with substitutability relative to games where the set of players is a continuum. Further, the disclosure of more precise public information does not necessarily reduce forecast dispersion in the presence of the endogenous private information choice, which is more likely in finite-player games with complementarity than in continuum-player counterparts.