Time preference effects in forecasting
arXiv:2607.13759
The paper examines how forecasters who prefer immediate rewards over future ones may bias their predictions about when uncertain events will happen, and shows empirical evidence that this leads to systematic overestimation of early occurrence probabilities.
Abstract
We study the evaluation of forecasts regarding the timing and occurrence of uncertain future events, such as volcanic eruptions, the start of a war or the beginning of a recession. We show theoretically that a typical approach -- evaluating the forecasts after the event occurred -- incentivizes dishonest predictions if forecasters discount future rewards in favor of more immediate benefits. An empirical application to forecasting tournament data finds strong empirical evidence that forecasters adjust predictions in response to these incentives, implying that existing forecasts of such events are likely systematically overstating the probability of early occurrence. We conclude that rewarding such forecasts in an incentive-compatible way is inherently challenging.