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Consider the following forecasting environments. In each case describe the nature of losses from forecast errors. Do you think the loss function is approximately symmetric?
a. Suppose you are a weather forecaster at a TV station for your city. You forecast the probability of rain the following day among other things. You know that people hate to be caught up in rain unprepared. You also know that they feel less irritated than in the former situation if they carried an umbrella based on the day’s forecast but the rain never materialized. And, of course, you do care how your viewers feel about your forecasts, because your job and salary depend on viewers’Page 2 of 2 ratings.
b. Your forecast project involves projecting water flows in a river in order to determine the height of the dam that is going to be built.
c. A person is trying to project his post retirement expenses. Based on that he will determine how much money from his current earnings he will have to set aside.
The Toys-R-4-U Company has developed two new toys for possible inclusion in its product line. Setting up the production facilities to begin production would cost $50,000 for toy 1.
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