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Experts adjusting model-based forecasts and the law of small numbers

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  • Franses, Ph.H.B.F.

Abstract

This paper conjectures that the behaviour of experts who adjust statistical-model-based forecasts obeys the Law of Small Numbers [LSN]. To put this hypothesis to an empirical test, I propose a simple but effective methodology. It is applied to a database containing information on many experts and their adjustments to forecasts of monthly sales of a variety of products. I find strong evidence in support of the LSN. Implications of this finding are discussed.

Suggested Citation

  • Franses, Ph.H.B.F., 2007. "Experts adjusting model-based forecasts and the law of small numbers," Econometric Institute Research Papers EI 2007-42, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
    • Handle: RePEc:ems:eureir:10563
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