Red herrings and revelations: does learning about a new variable worsen forecasts?

I develop a framework where agents forecast despite knowing only a subset of the variables in the true economic model. I then examine whether the discovery of an additional variable improves forecasting. Because agents do not know all of the variables in the model, they form expectations using bounded rationality. Under adaptive learning, agents form expectations by regressing a variable of interest on the revealed variables. Surprisingly, I...