Article ID: | iaor19952128 |
Country: | Netherlands |
Volume: | 11 |
Issue: | 1 |
Start Page Number: | 63 |
End Page Number: | 72 |
Publication Date: | Jan 1995 |
Journal: | International Journal of Forecasting |
Authors: | Abramson Bruce, Finizza Anthony |
Keywords: | forecasting: applications |
Probabilistic forecasts, probabilistic models, and contingent policy recommendations are inextricably intertwined. This article describes a case study in the use of inherently probabilistic belief network models to produce probabilistic forecasts of average annual oil prices. Belief networks are flexible enough to capture both standard, data-driven economic variables, and quantified expert judgements about the politics of the oil market (particularly the production and capacity policies of key OPEC members). These variables are interrelated by a combination of algebraic formulas, conditional probabilities, and econometric relations. The resultant network is used to test the impact of a variety of different scenarios. The probabilistic forecasts generated by running Monte Carlo analyses on these scenario networks provide corporate decision-makers with useful insights and recommendations.