Catastrophes in Forecasting

Examples of forecasting overconfidence abound. Prior to the Challenger space shuttle launch, NASA estimated the risk of a catastrophic failure at one in 100,000.

Two months before disaster struck the Chernobyl nuclear plant, Ukraine’s Minister of Power and Electrification claimed, “the odds of a meltdown are one in 10,000 years.”

Many commodities-driven companies—even those with advanced internal forecasting capabilities—are subject to catastrophic losses stemming from overconfidence in their forecast accuracy. Read on as we examine the sources of overconfidence and show savvy forecasters how to avoid them.