Demand Forecasting Behavior: System Neglect and Change Detection

Demand Forecasting Behavior: System Neglect and Change Detection

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Article ID: iaor201110169
Volume: 57
Issue: 10
Start Page Number: 1827
End Page Number: 1843
Publication Date: Oct 2011
Journal: Management Science
Authors: , ,
Keywords: behaviour
Abstract:

We analyze how individuals make forecasts based on time‐series data. Using a controlled laboratory experiment, we find that forecasting behavior systematically deviates from normative predictions: Forecasters overreact to forecast errors in relatively stable environments, but underreact to errors in relatively unstable environments. The performance loss that is due to such systematic judgment biases is larger in stable than in unstable environments.

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