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Communicating forecasts: The simplicity of simulated experience

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  • Hogarth, Robin M.
  • Soyer, Emre

Abstract

It is unclear whether decision makers who receive forecasts expressed as probability distributions over outcomes understand the implications of this form of communication. We suggest a solution based on the fact that people are effective at estimating the frequency of data accurately in environments that are characterized by plentiful, unbiased feedback. Thus, forecasters should provide decision makers with simulation models that allow them to experience the frequencies of potential outcomes. Before implementing this suggestion, however, it is important to assess whether people can make appropriate probabilistic inferences based on such simulated experience. In an experimental program, we find that statistically sophisticated and naïve individuals relate easily to this presentation mode, they prefer it to analytic descriptions, and their probabilistic inferences improve. We conclude that asking decision makers to use simulations actively is potentially a powerful – and simplifying – method to improve the practice of forecasting.

Suggested Citation

  • Hogarth, Robin M. & Soyer, Emre, 2015. "Communicating forecasts: The simplicity of simulated experience," Journal of Business Research, Elsevier, vol. 68(8), pages 1800-1809.
    • Handle: RePEc:eee:jbrese:v:68:y:2015:i:8:p:1800-1809
    DOI: 10.1016/j.jbusres.2015.03.039
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Cartwright, Samantha J. & Bowgen, Katharine M. & Collop, Catherine & Hyder, Kieran & Nabe-Nielsen, Jacob & Stafford, Richard & Stillman, Richard A. & Thorpe, Robert B. & Sibly, Richard M., 2016. "Communicating complex ecological models to non-scientist end users," Ecological Modelling, Elsevier, vol. 338(C), pages 51-59.
    2. Green, Kesten C. & Armstrong, J. Scott, 2015. "Simple versus complex forecasting: The evidence," Journal of Business Research, Elsevier, vol. 68(8), pages 1678-1685.
    3. Soyer, Emre & Hogarth, Robin M., 2015. "The golden rule of forecasting: Objections, refinements, and enhancements," Journal of Business Research, Elsevier, vol. 68(8), pages 1702-1704.
    4. Theodore G. Shepherd & Emily Boyd & Raphael A. Calel & Sandra C. Chapman & Suraje Dessai & Ioana M. Dima-West & Hayley J. Fowler & Rachel James & Douglas Maraun & Olivia Martius & Catherine A. Senior , 2018. "Storylines: an alternative approach to representing uncertainty in physical aspects of climate change," Climatic Change, Springer, vol. 151(3), pages 555-571, December.
    5. Azzurra Morreale & Jan Stoklasa & Mikael Collan & Giovanna Lo Nigro, 2018. "Uncertain outcome presentations bias decisions: experimental evidence from Finland and Italy," Annals of Operations Research, Springer, vol. 268(1), pages 259-272, September.

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