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Improved Moment-Estimation Formulas Using More Than Three Subjective Fractiles

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  • Hon-Shiang Lau

    (College of Business Administration, Oklahoma State University, Stillwater, Oklahoma 74074)

  • Amy Hing-Ling Lau

    (College of Business Administration, Oklahoma State University, Stillwater, Oklahoma 74074)

  • Chrwan-Jyh Ho

    (College of Business Administration, Oklahoma State University, Stillwater, Oklahoma 74074)

Abstract

PERT-type subjective estimations are used in many stochastic decision models to estimate the random variables' mean and standard deviation (s.d.). The approach is based on the beta-distribution assumption; also, most PERT-type formulas use only three estimated fractiles. We point out that: (i) it is desirable to consider a substantially richer set of distributions than the beta in developing PERT-type formulas; (ii) it may be beneficial to use more than three fractile-estimates in PERT-type formulas. We then develop formulas for estimating the mean and s.d. that are based on a substantially richer set of distributions than the beta and that use more than three estimated fractiles. These formulas perform better than the best currently-available formulas when the subjective distribution is not restricted to be beta.

Suggested Citation

  • Hon-Shiang Lau & Amy Hing-Ling Lau & Chrwan-Jyh Ho, 1998. "Improved Moment-Estimation Formulas Using More Than Three Subjective Fractiles," Management Science, INFORMS, vol. 44(3), pages 346-351, March.
    • Handle: RePEc:inm:ormnsc:v:44:y:1998:i:3:p:346-351
    DOI: 10.1287/mnsc.44.3.346
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