Academic journal article The Journal of Business Forecasting Methods & Systems

Developments in Demand Forecasting from Ancients Greeks to Present

Academic journal article The Journal of Business Forecasting Methods & Systems

Developments in Demand Forecasting from Ancients Greeks to Present

Article excerpt

(This is the first article in an ongoing column in The Journal of Business Forecasting. The column will appear in each issue and is intended to give a brief view on a potential topic of interest to practitioners of business forecasting. Since this is the first in a series, this article is a brief overview of the history of the progress in demand forecasting methods. Ed)

Peter L. Bernstein, in his book entitled Against the Gods: The Remarkable Story of Risk, chronicles the advances in the understanding and modeling of uncertainty. His thesis is that man's view on uncertainty (and hence forecasting the future) followed an evolutionary path that started from the Ancient Greeks' beliefs that one did not have to forecast because the gods, at times whimsically, controlled the future. During the Renaissance, the philosophy changed. People started to understand uncertainty and probabilistic events, driven by a precise structure put in place by Nature. In the latter part of the 1900s, with the advent of theories such as game theory, it became more apparent that people control much of what will happen in the future. As such, understanding the rational person would allow accurate predictions of the future.

DO PEOPLE ACT RATIONALLY?

Further research found that people did not always behave rationally, so one could not predict outcomes precisely. For that reason, today we have a different understanding of uncertainty (and forecasting). As Gottfried Wilhelm Leibniz, a great mathematician, said, "Nature has established patterns originating in the return of events, but only for the most part." G.K. Chesterton described it in more modern terms as, "The real trouble with this world of ours is not that it is an unreasonable world, nor even that it is a reasonable one. The commonest kind of trouble is that it is nearly reasonable, but not quite."

MODERN DEVELOPMENTS IN FORECASTING METHODS

Since the 1950s, demand forecasting has followed an evolutionary path similar to the one Bernstein described. Demand forecasting evolved as a means to examine the past using moving averages and exponential smoothing methods to forecast the future, assuming the future would closely follow the past. Newer, more sophisticated methods were developed in late 1950s through the mid-1970s in an attempt to understand seasonal and trend variations. These methods were based on the belief that there was a precise structure or pattern to historical demand (such as consumers' buying patterns), which, once understood, could be used to forecast the future. …

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