When providing optimistic and pessimistic scenarios can be detrimental to judgmental demand forecasts and production decisions

Goodwin, Paul, Gönül, Sinan and Önkal, Dilek (2019) When providing optimistic and pessimistic scenarios can be detrimental to judgmental demand forecasts and production decisions. European Journal of Operational Research, 273 (3). pp. 992-1004. ISSN 0377-2217

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Abstract

This paper examines the accuracy of judgmental forecasts of product demand and the quality of subsequent production level decisions under two different conditions: (i) the availability of only time series information on past demand; (ii) the availability of time series information together with scenarios that outline possible prospects for the product in the forthcoming period. An experiment indicated that production level decisions made by participants had a greater deviation from optimality when they also received optimistic and pessimistic scenarios. This resulted from less accurate point forecasts made by these participants. Further analysis suggested that participants focussed on the scenario that was congruent with the position of the latest observation relative to the series mean and discounted the opposing scenario. This led to greater weight being attached to this observation, thereby exacerbating the tendency of judgmental forecasters to see systematic changes in random movements in time series.

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