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Rationalizing Conflicting Forecasts

Are more forecasts better? A recent study published in the Journal of Marketing Research shows how managers presented with multiple forecasts will frequently discard the highest range and assume the more likely result will be somewhere in the middle. Further, the study found that managers will tend to ascribe greater plausibility to forecasts clustered in one area of the range of possibilities. In both cases the margin of error of forecasts tends to be given less weight than the stated ranges.

This behavior, while common, can lead to grossly inaccurate assumptions and undermines most of the math lying beneath the forecasts. It is another example of brain-defective thinking where our minds trick us into interpreting patterns that are not there.

Bottom line: Consider aggregating various forecasts (including their respective margins of error) into a single data set of possible forecast outcomes and then simulate the most likely results.

From a paper "Integration of Discrepant Sales Forecasts: The Influence of an Evoked Range," by Anne L. Roggeveen and Gita Venkataramani, Journal of Marketing Research. Available at www.marketingpower.com.