Abstract
We develop a theory of forecast coherence in production and use it to evaluate the rules-of-thumb managerial textbooks propose to help firms make rational forecasts
about multiple own variables. We rationalize some rules as second-best optimal responses to noisy signals and obtain testable predictions linking incoherence,
rules-of-thumb, and performance. Incoherence arises from ‘narrow thinking’— intra-personal frictions in coordinating forecasts across variables—and operates
via rules-of-thumb’s use. Using the Duke Survey of top executives of large US corporations, we find support for our model’s predictions. Our results imply about
one-half of CFOs make incoherent forecasts of own output and inputs’ growth.
The seminar will be held in room 1249 (12th floor) at Eilert Sundts Hus. The address is Moltke Moes vei 31.