Publications
Publications
- 2018
- HBS Working Paper Series
Averaging Probability Forecasts: Back to the Future
By: Robert L. Winkler, Yael Grushka-Cockayne, Kenneth C. Lichtendahl Jr. and Victor Richmond R. Jose
Abstract
The use and aggregation of probability forecasts in practice is on the rise. In this position piece, we explore some recent, and not so recent, developments concerning the use of probability forecasts in decision-making. Despite these advances, challenges still exist. We expand on some important challenges such as miscalibration, dependence among forecasters, and selecting an appropriate evaluation measure, while connecting the processes of aggregating and evaluating forecasts to decision-making. Through three important applications from the domains of meteorology, economics, and political science, we illustrate state-of-the-art usage of probability forecasts: how they are aggregated, evaluated, and communicated to stakeholders. We expect to see greater use and aggregation of probability forecasts, especially given developments in statistical modeling, machine learning, and expert forecasting; the popularity of forecasting competitions; and the increased reporting of probabilities in the media. Our vision is that increased exposure to and improved visualizations of probability forecasts will enhance the public’s understanding of probabilities and how they can contribute to better decisions.
Keywords
Probability Forecast; Forecast Combination; Forecast Evaluation; Decision Analysis; Forecasting and Prediction; Decision Making; Analysis
Citation
Winkler, Robert L., Yael Grushka-Cockayne, Kenneth C. Lichtendahl Jr., and Victor Richmond R. Jose. "Averaging Probability Forecasts: Back to the Future." Harvard Business School Working Paper, No. 19-039, October 2018.