Thursday, March 31, 2016

Combining Interval Forecasts

Read the working paper
INSEAD Working Paper 2016/23/DSC revised version of 2014/58/DSC

When combining forecasts, a simple average of the forecasts performs well, often better than more sophisticated methods.
In a prescriptive spirit, we consider some other parsimonious, easy-to-use heuristics for combining interval forecasts and compare their performance with the benchmark provided by the simple average, using simulations from a model we develop and data sets with forecasts made by professionals in their domain of expertise. The relative performance of the heuristics is influenced by the degree of overconfidence in and dependence among the individual forecasts, and different heuristics come out on top under different circumstances. The results provide some good, easy-to-use alternatives to the simple average, with an indication of when each might be preferable.