Wednesday, January 04, 2006

Some guidance on using economic forecasts...

I am trying to develop some 'golden rules' for using economic forecasts in local and regional economic development and analysis.... ok I published this 7 months ago on but...!

Looking into the future - the golden rules:
  • Forecasts should be used as part of a process of trying to understand the future – they provide only a partial insight into the economy
  • Any judgements about the future are not facts waiting to happen – there is a chance that they won’t come true
  • Any judgements about the future are based on current information – and this information can be out of date, inaccurate or wrong
  • The forecasts you use should be based on the most accurate (thanks dearieme) and up-to-date information available
  • It is strongly recommended that forecasts do not lead policy response
  • For any forecast it is correct to focus on broad movements and changes rather than on precise numbers
  • The user should recognise that all projections are subject to error
    Forecasts cannot predict shocks or sudden events
  • Forecasts should be read with a critical eye – they are usually based on modelling techniques and can overlook the specific uniqueness of local characteristics
  • Finally, forecasts should never be used as the sole input into planning or decision-making

Who is the bigger fool!? I would say that the bigger fool is the person who places forecasts as the most influential factor in their decision making. The lesser fool is the person who provides the forecasts and pretends that they can either accurately predict the future or can predict it more accurately than anyone else.


Blogger John East said...

and the final golden rule,

All forecasts invariably turn out to be wrong, the degree of error being in direction proportion to the effort made in producing the said forecast.

This is why it's so much fun.

6:19 AM  
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