Findings from Evidence-Based Forecasting: Methods for Reducing Forecast Error

Empirical comparisons of reasonable approaches provide evidence on the best forecasting procedures to use under given conditions. Based on this evidence, I summarize the progress made over the past quarter century with respect to methods for reducing forecasting error. Seven well-established methods have been shown to improve accuracy: combining forecasts and Delphi help for all types of data; causal modeling, judgmental bootstrapping and structured judgment help with cross-sectional data; and causal models and trend-damping help with time-series data. Promising methods for cross-sectional data include damped causality, simulated interaction, structured analogies, and judgmental decomposition; for time-series data, they include segmentation, rule-based forecasting, damped seasonality, decomposition by causal forces, damped trend with analogous data, and damped seasonality. The testing of multiple hypotheses has also revealed methods where gains are limited: these include data mining, neural nets, and Box-Jenkins methods. Multiple hypotheses tests should be conducted on widely used but relatively untested methods such as prediction markets, conjoint analysis, diffusion models, and game theory.