Forecasting

Abstract

Decisions in the fields of economics and management have to be made in the context of forecasts about the future state of the economy or market. As decisions are so important as a basis for these fields, a great deal of attention has been paid to the question of how best to forecast variables and occurrences of interest. There are several distinct types of forecasting situations including event timing, event outcome, and time-series forecasts. Event timing is concerned with the question of when, if ever, some specific event will occur, such as the introduction of a new tax law, or of a new product by a competitor, or of a turning point in the business cycle. Forecasting of such events is usually attempted by the use of leading indicators, that is, other events that generally precede the one of interest. Event-outcome forecasts try to forecast the outcome of some uncertain event that is fairly sure to occur, such as finding the winner of some election or the level of success of a planned marketing campaign. Forecasts are usually based on data specifically gathered for this purpose, such as a poll of likely voters or of potential consumers. There clearly should be a positive relationship between the amount spent on gathering the extra data and the quality of the forecast achieved.