On comparison of experts

Abstract

In various situations decision makers face experts that may provide conflicting advice. This advice may be in the form of probabilistic forecasts over critical future events. We consider a setting where the two forecasters provide their advice repeatedly and ask whether the decision maker can learn to compare and rank the two forecasters based on past performance. We take an axiomatic approach and propose three natural axioms that a comparison test should comply with. We propose a test that complies with our axioms. Perhaps, not surprisingly, this test is closely related to the likelihood ratio of the two forecasts over the realized sequence of events. More surprisingly, this test is essentially unique. Using results on the rate of convergence of supermartingales we show that whenever the two experts' advice are sufficiently distinct the proposed test will detect the informed expert in any desired degree of precision in some fixed finite time.JEL classification: C11, C70, C73, D83.

Testable forecasts

“…33 Contributions to the literature that are not included in the surveys include Sandroni and Shmaya (2014), Al‐Najjar et al (2014), Feinberg and Lambert (2015), and Kavaler and Smorodinsky (2019). …”