A Model of Forecast Biasing Behavior.

The purpose of this article is to describe a model of a forecaster's biasing behavior. The model should be of interest to accountants because the model provides a link between a forecaster's biasing behavior and the quality or acceptability of his forecast as an input to an accounting system. The article attempts to describe how a model which assumes that an individual bases his present action on his experience on the preceding trial can be applied to describe biasing behavior in a game theory-like situation. The individual forecaster (F) is asked to provide a forecast of some variable such as sales, cash flows or expenses for his area of responsibility. F works under a payoff structure which encourages him to intentionally bias his forecast within certain limits. F's desire to bias his forecast, and the desire of the recipient (R) to adjust F's forecast for the presence of bias places F and R in a situation not unlike a nonzero-sum game. However, most attempts by psychologists to use game theory as a descriptive theory of behavior have failed. The models discussed are abstractions of forecasting situations.