Demand Forecasting Behavior: System Neglect and Change Detection

We analyze how individuals make forecasts based on time-series data. Using a controlled laboratory experiment, we find that forecasting behavior systematically deviates from normative predictions: Forecasters overreact to forecast errors in relatively stable environments, but underreact to errors in...

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Bibliographic Details
Published in:Management science 2011-10, Vol.57 (10), p.1827-1843
Main Authors: Kremer, Mirko, Moritz, Brent, Siemsen, Enno
Format: Article
Language:English
Subjects:
Applications
behavioral operations
Data smoothing
Datasets
Demand
Economic psychology
Empirical research
Error
Exact sciences and technology
exponential smoothing
Forecasting
Forecasting models
Forecasting techniques
Forecasts
Forecasts and trends
Inference from stochastic processes
time series analysis
Insurance, economics, finance
Management science
Mathematics
Methods
Normativity
Observational research
Organizational behavior
Organizational behaviour
Probability and statistics
Sciences and techniques of general use
Signal noise
Statistical forecasts
Statistics
Studies
Supply and demand
system neglect
Time series
Time series forecasting
Time-series analysis
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Description
Summary:We analyze how individuals make forecasts based on time-series data. Using a controlled laboratory experiment, we find that forecasting behavior systematically deviates from normative predictions: Forecasters overreact to forecast errors in relatively stable environments, but underreact to errors in relatively unstable environments. The performance loss that is due to such systematic judgment biases is larger in stable than in unstable environments. This paper was accepted by Martin Lariviere, operations management.
ISSN:0025-1909
1526-5501
DOI:10.1287/mnsc.1110.1382