The Better Way to Forecast the Future
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Crowdsourcing works so well, in fact, says Harvard Business School visiting associate professor Yael Grushka-Cockayne, that executives should adopt a similar approach when it comes to using probability forecasts of business-critical issues; for example, the likelihood that product demand will increase by a given percentage next quarter.
“The whole notion of using crowds is very popular in many different fields,” says Grushka-Cockayne, whose research is on data science, forecasting, project management, and behavioral decision-making. “Our work is focused on using crowds for prediction and for forecasting something that is unknown.”
The idea is explored in a working paper published in October 2018, Averaging Probability Forecasts: Back to the Future. Grushka-Cockayne, on loan from University of Virginia’s Darden School of Business, joined with Darden colleague Casey. Lichtendahl; Bob Winkler of Duke University’s Fuqua School of Business; and Victor Jose of Georgetown University’s McDonough School of Business to lay out best practices as well as challenges. They also highlight three domains already using probability forecasts successfully: meteorology, economics, and political science.
Probability forecasting differs from simple point forecasts by producing a range of possible outcomes and how likely each outcome is, conveying richer information related to business decisions. Its use is on the rise, but businesses are still learning how best to leverage it.
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