Forecasting and uncertainty in the economic and business world

• Published in: International journal of forecasting Vol. 25; no. 4; pp. 794 - 812
• Main Authors: Makridakis, Spyros, Hogarth, Robin M., Gaba, Anil
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 01.10.2009; Elsevier; Elsevier Sequoia S.A
• Series: International Journal of Forecasting
• Subjects: Accuracy; Black swans; Coconut uncertainty; Dealing with uncertainty; Decision making; Economic forecasting; Forecasting; Forecasting Accuracy Uncertainty Subway uncertainty Coconut uncertainty Black swans Illusion of control Dealing with uncertainty; Illusion of control; Policy making; Studies; Subway uncertainty; Uncertainty; Coconut uncertainty; Illusion of control; Accuracy; Uncertainty; Black swans; Forecasting; Subway uncertainty; Dealing with uncertainty
• ISSN: 0169-2070; 1872-8200
• DOI: 10.1016/j.ijforecast.2009.05.012

Forecasts are crucial for practically all economic and business decisions. However, there is a mounting body of empirical evidence showing that accurate forecasting in the economic and business world is usually not possible. In addition, there is huge uncertainty, as practically all economic and business activities are subject to events we are unable to predict. The fact that forecasts can be inaccurate creates a serious dilemma for decision and policy makers. On the one hand, accepting the limits of forecasting accuracy implies being unable to assess the correctness of decisions and the surrounding uncertainty. On the other hand, believing that accurate forecasts are possible means succumbing to the illusion of control and experiencing surprises, often with negative consequences. We believe that the time has come for a new attitude towards dealing with the future. In this article, we discuss the limited predictability in the economic and business environment. We also provide a framework that allows decision and policy makers to face the future — despite the inherent limitations of forecasting and the uncertainty, sometimes huge, surrounding most future-oriented decisions.