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Do Experts incorporate Statistical Model Forecasts and should they?

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Author Info

  • Rianne Legerstee

    (Erasmus University Rotterdam)

  • Philip Hans Franses

    (Erasmus University Rotterdam)

  • Richard Paap

    (Erasmus University Rotterdam)

Abstract

Experts can rely on statistical model forecasts when creating their own forecasts. Usually it is not known what experts actually do. In this paper we focus on three questions, which we try to answer given the availability of expert forecasts and model forecasts. First, is the expert forecast related to the model forecast and how? Second, how is this potential relation influenced by other factors? Third, how does this relation influence forecast accuracy? We propose a new and innovative two-level Hierarchical Bayes model to answer these questions. We apply our proposed methodology to a large data set of forecasts and realizations of SKU-level sales data from a pharmaceutical company. We find that expert forecasts can depend on model forecasts in a variety of ways. Average sales levels, sales volatility, and the forecast horizon influence this dependence. We also demonstrate that theoretical implications of expert behavior on forecast accuracy are reflected in the empirical data.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 11-141/4.

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Date of creation: 04 Oct 2011
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Handle: RePEc:dgr:uvatin:20110141

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Web page: http://www.tinbergen.nl

Related research

Keywords: model forecasts; expert forecasts; forecast adjustment; Bayesian analysis; endogeneity;

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  1. Philip Hans Franses & Rianne Legerstee, 2010. "Do experts' adjustments on model-based SKU-level forecasts improve forecast quality?," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 29(3), pages 331-340.
  2. Flores, Benito E., 2009. "Comments on "Effective forecasting and judgmental adjustments: An empirical evaluation and strategies for improvement in supply-chain planning"," International Journal of Forecasting, Elsevier, vol. 25(1), pages 27-29.
  3. ├ľnkal, Dilek, 2009. "Comments on "Effective forecasting and judgmental adjustments: An empirical evaluation and strategies for improvement in supply-chain planning"," International Journal of Forecasting, Elsevier, vol. 25(1), pages 30-31.
  4. Sanders, NR, 1992. "Accuracy of judgmental forecasts: A comparison," Omega, Elsevier, vol. 20(3), pages 353-364, May.
  5. Fildes, Robert & Goodwin, Paul & Lawrence, Michael & Nikolopoulos, Konstantinos, 2009. "Effective forecasting and judgmental adjustments: an empirical evaluation and strategies for improvement in supply-chain planning," International Journal of Forecasting, Elsevier, vol. 25(1), pages 3-23.
  6. Bunn, Derek W. & Salo, Ahti A., 1996. "Adjustment of forecasts with model consistent expectations," International Journal of Forecasting, Elsevier, vol. 12(1), pages 163-170, March.
  7. Robert Fildes & Paul Goodwin, 2007. "Good and Bad Judgment in Forecasting: Lessons from Four Companies," Foresight: The International Journal of Applied Forecasting, International Institute of Forecasters, issue 8, pages 5-10, Fall.
  8. McNees, Stephen K., 1990. "The role of judgment in macroeconomic forecasting accuracy," International Journal of Forecasting, Elsevier, vol. 6(3), pages 287-299, October.
  9. Sanders, Nada R., 2009. "Comments on "Effective forecasting and judgmental adjustments: An empirical evaluation and strategies for improvement in supply-chain planning"," International Journal of Forecasting, Elsevier, vol. 25(1), pages 24-26.
  10. Goodwin, Paul, 2000. "Improving the voluntary integration of statistical forecasts and judgment," International Journal of Forecasting, Elsevier, vol. 16(1), pages 85-99.
  11. Robert C. Blattberg & Stephen J. Hoch, 1990. "Database Models and Managerial Intuition: 50% Model + 50% Manager," Management Science, INFORMS, vol. 36(8), pages 887-899, August.
  12. Franses, Philip Hans & Legerstee, Rianne, 2009. "Properties of expert adjustments on model-based SKU-level forecasts," International Journal of Forecasting, Elsevier, vol. 25(1), pages 35-47.
  13. Heij, Christiaan & de Boer, Paul & Franses, Philip Hans & Kloek, Teun & van Dijk, Herman K., 2004. "Econometric Methods with Applications in Business and Economics," OUP Catalogue, Oxford University Press, number 9780199268016.
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