Publications

SSRN

Article

Is it Better to Average Probabilities or Quantiles?

By: Kenneth C. Lichtendahl, Yael Grushka-Cockayne and Robert L. Winkler

We consider two ways to aggregate expert opinions using simple averages: averaging probabilities and averaging quantiles. We examine analytical properties of these forecasts and compare their ability to harness the wisdom of the crowd. In terms of location, the two... View Details

Keywords: Probability Forecasts; Quantile Forecasts; Expert Combination; Linear Opinion Pooling; Forecasting and Prediction

Article

Bringing Probability Judgments into Policy Debates via Forecasting Tournaments

By: Philip E. Tetlock, Barbara A. Mellers and J. Peter Scoblic

Political debates often suffer from vague-verbiage predictions that make it difficult to assess accuracy and improve policy. A tournament sponsored by the U.S. intelligence community revealed ways in which forecasters can better use probability estimates to make... View Details

Keywords: Tournaments; Politics; Depolarization; Knowledge Creation; Forecasting and Prediction; Government and Politics

2010
Working Paper

Valuation When Cash Flow Forecasts Are Biased

By: Richard S. Ruback

This paper focuses adaptations to the discount cash flow (DCF) method when valuing forecasted cash flows that are biased measures of expected cash flows. I imagine a simple setting where the expected cash flows equal the forecasted cash flows plus an omitted downside.... View Details

Keywords: Forecasting and Prediction; Cash Flow; Cost of Capital; Performance Expectations; Prejudice and Bias; Valuation

Article

Ensembles of Overfit and Overconfident Forecasts

By: Y. Grushka-Cockayne, V.R.R. Jose and K. C. Lichtendahl

Firms today average forecasts collected from multiple experts and models. Because of cognitive biases, strategic incentives, or the structure of machine-learning algorithms, these forecasts are often overfit to sample data and are overconfident. Little is known about... View Details

Keywords: Decision Analysis; Data Science; Forecasting and Prediction; Data and Data Sets

24 Nov 2010
Working Paper Summaries

Valuation When Cash Flow Forecasts Are Biased

Keywords: by Richard S. Ruback

07 Jan 2019
Research & Ideas

The Better Way to Forecast the Future

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... View Details

Keywords: by Roberta Holland; Air Transportation; Transportation

2016
Working Paper

Bias in Official Fiscal Forecasts: Can Private Forecasts Help?

By: Jeffrey A. Frankel and Jesse Schreger

Government forecasts of GDP growth and budget balances are generally more over optimistic than private sector forecasts. When official forecasts are especially optimistic relative to private forecasts ex ante, they are more likely also to be over optimistic relative to... View Details

Keywords: Forecasting and Prediction; Macroeconomics

20 Jun 2016
Research & Ideas

When Predicting Other People's Preferences, You're Probably Wrong

implications for anyone looking to impress others, for those who are tasked with forecasting consumer behavior, or for salespeople who consult with customers on prospective purchases. In short, it’s dangerous to predict what others will... View Details

Keywords: by Carmen Nobel; Retail

2015
Working Paper

The Probability of Rare Disasters: Estimation and Implications

By: Emil Siriwardane

I analyze a rare disasters economy that yields a measure of the risk neutral probability of a macroeconomic disaster, p*t. A large panel of options data provides strong evidence that p*t is the single factor driving option-implied jump risk measures in the cross... View Details

Keywords: Financial Markets; Forecasting and Prediction; Financial Crisis; Macroeconomics

SSRN

2018
Working Paper

Bayesian Ensembles of Binary-Event Forecasts: When Is It Appropriate to Extremize or Anti-Extremize?

By: Kenneth C. Lichtendahl Jr., Yael Grushka-Cockayne, Victor Richmond R. Jose and Robert L. Winkler

Many organizations face critical decisions that rely on forecasts of binary events. In these situations, organizations often gather forecasts from multiple experts or models and average those forecasts to produce a single aggregate forecast. Because the average... View Details

Keywords: Forecast Aggregation; Linear Opinion Pool; Generalized Additive Model; Generalized Linear Model; Stacking.; Forecasting and Prediction

SSRN

Article

Trimmed Opinion Pools and the Crowd's Calibration Problem

By: Victor Richmond R. Jose, Yael Grushka-Cockayne and Kenneth C. Lichtendahl

We introduce an alternative to the popular linear opinion pool for combining individual probability forecasts. One of the well-known problems with the linear opinion pool is that it can be poorly calibrated. It tends toward underconfidence as the crowd's diversity... View Details

Keywords: Trimmed Opinion Pools; Forecasting and Prediction

January 2019
Article

Bubbles for Fama

By: Robin Greenwood, Andrei Shleifer and Yang You

We evaluate Eugene Fama's claim that stock prices do not exhibit price bubbles. Based on U.S. industry returns 1926–2014 and international sector returns 1985–2014, we present four findings: (1) Fama is correct in that a sharp price increase of an industry portfolio... View Details

Keywords: Bubble; Market Efficiency; Predictability; Price Bubble; Stocks; Price; Forecasting and Prediction

January 2021
Case

The FIRE Savings Calculator

By: Michael Parzen and Paul Hamilton

This case follows Carol Muñoz, a member of the Financial Independence, Retire Early (FIRE) lifestyle movement. At the age of 45, Carol is considering retiring and living off the $1 million she has accumulated. Using Monte Carlo simulation, Carol forecasts the... View Details

Keywords: Analysis; Forecasting and Prediction; Financial Strategy; Investment Portfolio; Investment Return; Personal Finance; Saving; Risk and Uncertainty; Diversification; Theory; Personal Development and Career; Financial Services Industry

Educators

January 2001 (Revised July 2003)
Case

Pharmacyclics: Financing Research & Development

By: Malcolm P. Baker, Richard S. Ruback and Aldo Sesia

Pharmacyclics (NASDAQ: PCYC), a pharmaceutical company that manufactures products that will improve existing therapeutic treatments for cancer, arteriosclerosis, and retinal disease, was considering a $60 million private placement in February 2000. The company had more... View Details

Keywords: Valuation; Cash Flow; Financing and Loans; Business Startups; Financial Strategy; Medical Devices and Supplies Industry; Pharmaceutical Industry; Health Industry

Educators

03 Dec 2015
Op-Ed

How "New Nuclear" Power Could Save the Planet—If Regulators Would Allow It

Leaders from some 150 nations have convened in Paris this week for the COP21 conference with a singular goal: to fight the global threat of climate change. Each of them have brought to Paris their own national plan for reducing greenhouse gas emissions that drive... View Details

Keywords: by Joseph Lassiter; Energy

07 Oct 2024
Research & Ideas

Election 2024: Why Demographics Won't Predict the Next President

Pundits love a political horse race, parsing the latest polls to predict who might win an election. And in the final runup to the US presidential contest, these forecasts can influence markets and shape public opinion and policies. But as... View Details

Keywords: by Jay Fitzgerald

April 2022
Article

Predictable Financial Crises

By: Robin Greenwood, Samuel G. Hanson, Andrei Shleifer and Jakob Ahm Sørensen

Using historical data on post-war financial crises around the world, we show that crises are substantially predictable. The combination of rapid credit and asset price growth over the prior three years, whether in the nonfinancial business or the household sector, is... View Details

Keywords: Financial Crisis; Global Range; Forecasting and Prediction; Mathematical Methods

12 Jul 2016
First Look

July 12, 2016

forecasts as an input into the government budgeting-making process would probably reduce official forecast errors for budget deficits. Download working paper:... View Details

Keywords: Sean Silverthorne

August 2018
Case

BlackBuck (A)

By: Shikhar Ghosh and Shweta Bagai

The case presents the challenges of scaling an asset-heavy company (that relies on its operations). It highlights how decisions on the early team impact a company’s ability to scale, linkage between growth and cash flows, as well the organizational impact of high... View Details

Keywords: Founders; Entrepreneurship; Growth and Development Strategy; Service Delivery; Cash Flow; Growth Management; Truck Transportation; Online Technology; India