Reviews of Important Papers on Forecasting,
1985-1995 Reviews
Review of:

Steven J. Rosenstone, John Mark Hansen, and Donald R. Kinder (1986), "Measuring change in personal economic well-being," Public Opinion Quarterly, 50, 176-192.

     This paper shows that more reliable data can improve the estimation of a relationship. Reliability of the measure of economic well-being was improved in a number of ways. The authors then examined the effect on the estimate of the relationships to three variables: evaluations of the nationís economy, evaluations of Ronald Reaganís performance as president, and the vote choice between Reagan and Mondale. Here are some of the findings:

  1. The change from a 3-point to a 5-point scale for economic well-being had a strong impact on the estimated relationships.
  2. The use of four items rather than one to measure economic well-being produced only minor gains (beyond the 5-point scale).
  3. Behavioral measures had no effect once the attitudinal measures of economic well-being had been taken into account.
  4. The use of questions less dependent on memory (asked about the last six months rather than the past year), produced no further gain.

The authorís claim that the use of five rather than three categories for the economic well-being question produced Ďstartlingí results; the estimated relationships were almost twice as large. Most significant for the forecasters, however, is the finding that when these different measures were used to develop a predictive model, they yielded negligible improvements in accuracy (when tested in the calibration samples). This is my conclusion from the standard errors reported in the paper; Rosenstone told me that he disagrees. No examination was made of the effect of these alternative measures on out-of-sample forecasts.