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Cry Wolf or Equivocate? Credible Forecast Guidance in a Cost-Loss Game

What is the most credible way to convey the risk in expert forecasts to the nonexpert decision makers who use the forecast? We test two ways to communicate this information: provide an unequivocal recommendation or equivocate by providing the probability of the uncertain event of interest. We use a simple game in which human subjects (the forecast users) decide whether to take a risk of a loss or pay a cost to avoid the risk. We find that the influence of forecast information differs depending on whether the information implies that the decision maker should take the status quo action, the preforecast optimal action, or the siren action, optimal only if the period-by-period forecast implies it. Unequivocal recommendations are more successful at inducing the status quo action. Equivocating by providing probabilities is more successful at inducing the siren action. Unequivocal recommendations to take the siren action are less effective because the false certainty makes them more vulnerable to the “cry wolf”...