The limits of forecasting methods in anticipating rare events

P Goodwin, George Wright

    Research output: Contribution to journalArticle

    101 Citations (Scopus)

    Abstract

    In this paper we review methods that aim to aid the anticipation of rare, high-impact, events. We evaluate these methods according to their ability to yield well-calibrated probabilities or point forecasts for such events. We first identify six factors that can lead to poor calibration and then examine how successful the methods are in mitigating these factors. We demonstrate that all the extant forecasting methods — including the use of expert judgment, statistical forecasting, Delphi and prediction markets — contain fundamental weaknesses. We contrast these methods with a non-forecasting method that is intended to aid planning for the future — scenario planning. We conclude that all the methods are problematic for aiding the anticipation of rare events and that the only remedies are to either (i) to provide protection for the organization against the occurrence of negatively-valenced events whilst allowing the organization to benefit from the occurrence of positively-valenced events, or (ii) to provide conditions to challenge one's own thinking — and hence improve anticipation. We outline how components of devil's advocacy and dialectical inquiry can be combined with Delphi and scenario planning to enhance anticipation of rare events.
    Original languageEnglish
    Pages (from-to)355-368
    Number of pages14
    JournalTechnological Forecasting and Social Change
    Volume77
    Issue number3
    DOIs
    Publication statusPublished - Mar 2010

    Keywords

    • forecasting methods
    • rare events
    • expert judgment
    • statistical forecasting
    • delphi
    • scenario planning

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