New answers tagged behavioral-economics
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To avoid confusion inherent in colloquial expressions, it is convenient to define and analyze expectations and forecasts using mathematics and statistics.
An expectation is then the expected value $\mathbb{E}(X)$ of an underlying random variable $X$.
It may be unconditional or conditional, usually the latter, and we can make that explicit: $\mathbb{E}(X|I)$ ...
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The expectation refers to reality, your forecast is your guess about reality.
When you roll a dice the expectation is $3.5$, if you always forecast $3$, your forecast bias will be $0.5$.
If the inflation on average rises by $3\%$, but you predict that it rises by $2\%$, your forecast bias is $1pp$.
We usually cannot know the real expectation and, hence, the ...
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Forecasts are based on data that's tangible prior to the event you are forecasting. Forecasts also are for a specific day in the future. Expectations can also be based on past data however with expectations the person who is 'expecting' 100 units of XYZ can also manipulate or create or do or not do something that would cause the expectation to be what it is....
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Behavioral economics is in large parts a collection of models and theories that purport to explain deviations from the predictions of neo-classical theory. For this reason, textbooks in behavioral economics include neo-classical theory, experimental evidence of deviations, and models trying to explain those. (This is why the Dhami has 1764 pages.) To ...
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