When does more mean worse? Accuracy of judgmental forecasting is nonlinearly related to length of data series

Zoe Theocharis and Nigel Harvey

Omega, 2019, vol. 87, issue C, 10-19

Abstract: When people make forecasts from series of data, how does their accuracy depend on the length of the series? Previous research has produced highly conflicting findings: some work shows accuracy increases with more data; other research shows that it decreases. In two experiments, we found an inverted U-shaped relation between forecast error and series length for various series containing different patterns and noise levels: error decreased as the length of the series increased from five through 20 to 40 items but also decreased as the series length decreased from five through two to one item. We argue that, with short series, people use a simple heuristic approach to forecasting (e.g., the naïve forecast). With longer series, they extract patterns from the series and extrapolate from them to produce their forecasts. Use of heuristics is poorer but extraction of patterns is better when there are more items in the series. For series of intermediate length, neither type of strategy operates well, thereby producing the inverted U-shaped relation that we observed. Implications for unaided judgmental forecasting and for forecasting based on a combination of judgmental and statistical methods are discussed.

Keywords: Judgmental forecasting; Time series; Heuristics; Pattern extraction (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (1)

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DOI: 10.1016/j.omega.2018.11.009

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