Properties of expert adjustments on model-based SKU-level forecasts

Abstract

The recent literature on expert adjustment of model-based forecasts at the SKU level suggests that such adjustments occur quite frequently. Second, over-optimism of experts is found to cause adjustments to be upwards more often than downwards. We analyze a unique database containing one-step-ahead model-based forecasts adjusted by many experts, who are located in 37 countries, and are making forecasts for pharmaceutical products within 7 distinct categories. Our results are consistent with earlier findings that the experts make frequent adjustments and that these tend to be upward. Next, and this is new to the literature, we document the fact that expert adjustment itself is largely predictable, where the weight of a forecaster’s own earlier adjustment is about three times as large as the weight of past model-based forecast errors. We also show that expert adjustment is not independent of the model-based forecasts, and we argue that this affects the way we should evaluate the contribution of expert adjustment to the overall forecast quality.