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Presidential address- Seeing through the fog


  • Henry J. Aaron


All public policies have two things in common. They deal with the future and, as a result, they are based on forecasts or projections. The forecasts or projections may be implicit or based on naive extrapolation or ad hoc assumptions. They may be explicit and based on elaborate extrapolations or on behavioral models. In either case, unfortunately, they are notoriously unreliable. In fact, they almost always are wrong-sometimes just a bit wrong, but often massively wrong. Nonetheless, forecasts are what distinguishes reasoned planning from blind action. Without forecasts, we would be totally at sea. That we have to use forecasts or projections, that we know they will be wrong, and that they usually are wrong raise some difficult questions for policy analysis and policymaking. Regrettably, in my view, they receive too little attention.2 My purpose today is to urge that they receive more. My comments are intended to make four points. First, it is important for policymakers to appreciate how errorprone forecasts and projections actually are. Second, it is important not to permit the availability of projections or forecasts to obscure fundamental policy questions that are important in any plausible scenario. Third, uncertainty means that, where possible, it is prudent to design policies with builtin flexibility that respond automatically to diverse possible outcomes. Fourth, where builtin flexibility is impossible, complete analyses should take into account the consequences if forecasts prove wrong, and weigh those consequences against the results of postponing action until information improves or against other policies under the plausible range of possible outcomes. © 2000 by the Association for Public Policy Analysis and Management.

Suggested Citation

  • Henry J. Aaron, 2000. "Presidential address- Seeing through the fog," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 19(2), pages 193-206.
  • Handle: RePEc:wly:jpamgt:v:19:y:2000:i:2:p:193-206 DOI: 10.1002/(SICI)1520-6688(200021)19:2<193::AID-PAM2>3.0.CO;2-Q

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    References listed on IDEAS

    1. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-291, March.
    2. Alan J. Auerbach & Kevin A. Hassett, 1999. "Uncertainty and the Design of Long-Run Fiscal Policy," NBER Working Papers 7036, National Bureau of Economic Research, Inc.
    3. Murphy, Kevin M & Welch, Finis, 1998. "Perspectives on the Social Security Crisis and Proposed Solutions," American Economic Review, American Economic Association, vol. 88(2), pages 142-150, May.
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    Cited by:

    1. Dahlia K. Remler & Joshua Graff Zivin & Sherry A. Glied, 2004. "Modeling health insurance expansions: Effects of alternate approaches," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 23(2), pages 291-313.
    2. Sanders, Dwight R. & Manfredo, Mark R., 2002. "Usda Production Forecasts For Pork, Beef, And Broilers: An Evaluation," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 27(01), July.
    3. Mark R. Manfredo & Dwight R. Sanders, 2004. "The forecasting performance of implied volatility from live cattle options contracts: Implications for agribusiness risk management," Agribusiness, John Wiley & Sons, Ltd., vol. 20(2), pages 217-230.
    4. Sanders, Dwight R. & Manfredo, Mark R. & Boris, Keith, 2009. "Evaluating information in multiple horizon forecasts: The DOE's energy price forecasts," Energy Economics, Elsevier, vol. 31(2), pages 189-196.
    5. Lawrence Mead, 2015. "Only connect: Why government often ignores research," Policy Sciences, Springer;Society of Policy Sciences, vol. 48(2), pages 257-272, June.
    6. Sanders, Dwight R. & Manfredo, Mark R., 2003. "USDA Livestock Price Forecasts: A Comprehensive Evaluation," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 28(02), August.

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