The Review of Economics and Statistics Vol. 88 No. 1 2006
The Effect of Foreign Competition on Forecasting Bias
Abstract
This paper studies the effect of foreign competition on the extent of forecasting bias. I focus on two biases often described in the behavioral economics literature: overoptimism and excessive belief in trends. Using data from firm-level surveys in five African countries, I show that firms that do not face foreign competition generate forecasts of sales growth that have greater trend and optimism biases than firms that have foreign competitors. I further provide evidence that these erroneous forecasts have real effects on firms' inventory management.
- DOI
- 10.1162/rest.2006.88.1.61
- Volume
- 88
- Issue
- 1
- Pages
- 61-68
- Language
- en
- Sources
- crossref openalex