• Corpus ID: 246822563

Simple Models and Biased Forecasts

  title={Simple Models and Biased Forecasts},
  author={Pooya Molavi},
This paper proposes a general framework in which agents are constrained to use simple timeseriesmodels to forecast economic variables and characterizes the resulting bias in the agents’ forecasts. It considers agents who can only entertain state-space models with no more than 3 states, where 3 measures the agents’ cognitive abilities. Agents’ models are otherwise unrestricted a priori anddisciplined endogenously bymaximizing the fit to the true process. When the true process does not have a 3… 
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