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Experts adjusting model-based forecasts and the law of small numbers

Philip Hans Franses

No EI 2007-42, Econometric Institute Research Papers from Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute

Abstract: This paper conjectures that the behaviour of experts who adjust statistical-model-based forecasts obeys the Law of Small Numbers [LSN]. To put this hypothesis to an empirical test, I propose a simple but effective methodology. It is applied to a database containing information on many experts and their adjustments to forecasts of monthly sales of a variety of products. I find strong evidence in support of the LSN. Implications of this finding are discussed.

Keywords: expert adjustment; law of small numbers; model-based forecast (search for similar items in EconPapers)
Date: 2007-10-02
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