A hypothesis of uncertain future was created and first applied in the field of utility and prospect theories. An extension of application of the hypothesis to the field of forecasting is considered in the article. The concept of inevitability of unforeseen events is a part of the hypothesis of uncertain future, namely of its first consequence. Partially unforeseen events and their role in forecasting are analyzed. Possible applications of the hypothesis in the field of forecasting are considered. Generally, preliminary preparations of forecast corrections are shown to be able, under specified conditions, to quicken the revisions of forecasts after partially unforeseen events have occurred. Particularly, correcting formulae for forecasts are proposed, including additive-multiplicative formulae. The hypothesis of uncertain future, its consequences and their possible applications are briefly reviewed.
KeywordsEllsberg paradox forecast risk uncertainty utility
JEL Classification C53, D81
- Allais, M., 1953. Le comportement de l’homme rationnel devant le risque: Critique le postulats et axioms de L’École Américaine. Econometrica, 21, pp. 503-546.
- Arbatli, E.C., and Vasishtha, G., 2012. Growth in Emerging Market Economies and the Commodity Boom of 2003–2008: Evidence from Growth Forecast Revisions. Working Papers from Bank of Canada.
- Bryan, R.W., 2009. The Macroeconomic Impacts of the 9/11 Attack: Evidence from Real-Time Forecasting. Peace Economics, Peace Science, and Public Policy, 15, pp. 1-29.
- Caporin, M., McAleer, M., 2010. A scientific classification of volatility models. Journal of Economic Surveys, 24, pp. 192-195.
- Caporin, M., McAleer, M., 2011. Thresholds, news impact surfaces and dynamic asymmetric multivariate GARCH. Statistica Neerlandica, 65, pp. 125-163.
- Castle, J., Doornik, J., and Hendry, D., 2012. Model selection when there are multiple breaks. Journal of Econometrics, 169, pp. 239-246.
- Chang, C., Franses, P., and McAleer, M., 2011. How accurate are government forecasts of economic fundamentals? The case of Taiwan. International Journal of Forecasting, 27, pp. 1066-1075.
- Clements, M., and Hendry, D., 2006. Forecasting with Breaks. in: Elliott, G., Granger, C. and Timmermann, A. (Eds.), Handbook of Economic Forecasting. Elsevier. 1, pp. 605-657.
- Dincer, N., and Kandil, M, 2011. The effects of exchange rate fluctuations on exports: A sectoral analysis for Turkey. The Journal of International Trade & Economic Development, 20, pp. 809-837.
- Ellsberg, L., 1961. Risk, Ambiguity, and the Savage Axioms. The Quarterly Journal of Economics, 75, pp. 643-669.
- Gonzalez-Hermosillo, B., Martin, V.L., Dungey, M., and Fry-McKibbin, R.A., 2003. Characterizing Global Investors’ Risk Appetite for Emerging Market Debt During Financial Crises. IMF Working Papers from International Monetary Fund, 03/251.
- Goodhart, Ch., 2004. The interaction between the Bank of England’s forecasts and policy, and the outturn. LSE Research Online Documents on Economics from London School of Economics and Political Science.
- Hackworth, Ch., Radia, A., and Roberts, N., 2013. Understanding the MPC’s forecast performance since mid-2010. Bank of England Quarterly Bulletin, 53, pp. 336-350.
- Harin, A., 2007. Principle of uncertain future, examples of its application in economics, potentials of its applications in theories of complex systems, in set theory, probability theory and logic. Seventh International Scientific School “Modelling and Analysis of Safety and Risk in Complex Systems”, Saint-Petersbourg, Russia, 7, 80-94.
- Harin, A., 2008. To development of a general formula of forecasting, Proceedings of the 51 scientific conference of MIPT “Modern problems of fundamental and applied sciences, Dolgoprudny, Moscow Region, Russia.
- Harin, А., 2010. Theorem of existence of ruptures in the probability scale. 9th International conference “Financial and Actuarial Mathematics and Eventoconverging Technologies”, Krasnoyarsk, Russia.
- Harin, А., 2012. Data Dispersion in Economics(II)— Inevitability and Consequences of Restrictions. Review of Economics & Finance, 2, pp. 24-36.
- Heisenberg, W., 1927. Über den anschaulichen Inhalt der quantentheoretischen Kinematik und Mechanik. Zeitschrift für Physik, 43, pp. 172-198.
- Hendry, D.F., and Mizon, G.E., 2014. Unpredictability in economic analysis, econometric modeling and forecasting. Journal of Econometrics, 182, pp. 186-195.
- Hendry, D.F., and Ericsson, N.R., Ed., 2003. Understanding Economic Forecasts, MIT Press Books from The MIT Press, 1.
- Ikeda, T., 2012. Three Essays on Robustness and Asymmetries in Central Bank Forecasting, Discussion Papers from Graduate School of Economics, Kobe University, 1216.
- Kahneman, D., and Thaler, R. 2006. Anomalies: Utility Maximization and Experienced Utility. Journal of Economic Perspectives, 20, pp. 221-234.
- Lahiri, K., Davies, A., and Sheng, X., 2010. Analyzing Three-Dimensional Panel Data of Forecasts. Discussion Papers from University at Albany, SUNY, Department of Economics.
- Lu, Ch.-Ch.J., 2012. An adaptive system for predicting freeway travel times. International Journal of Information Technology & Decision Making (IJITDM), 11, pp. 727-747.
- McAleer, M., Medeiros, M., and Slottje, D., 2008. A neural network demand system with heteroskedastic errors. Journal of Econometrics, 147, pp. 359-371.
- Miller, J.I., and Ni, S., 2010. Long-Term Oil Price Forecasts: A New Perspective on Oil and the Macroeconomy. Working Papers from Department of Economics, University of Missouri, No 1012.
- Morlidge, S., 2013. How good is a “good” forecast?: Forecast errors and their avoidability. Foresight: The International Journal of Applied Forecasting, 30, pp. 5-11.
- Tversky, A., and Wakker, P., 1995. Risk attitudes and decision weights. Econometrica, 63, pp. 1255-1280.
- Waerden van der, B., 1976. Algebra, Moscow, Russia, pp. 1-648.
- Zeev, N.B., and Khan, H.U., 2013. Investment-Specific News Shocks and U.S. Business Cycles. Carleton Economic Papers from Carleton University, Department of Economics, No 12-05.