The Effectiveness of Simple Decision Heuristics: Forecasting Commercial Success for Early-Stage Ventures
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PREDICTING INVENTIONS’ SUCCESS WITH SIMPLE RULES
Most inventions fail to be commercialized profitably. Wouldn’t it be nice to be able to predict which ones will? This paper, by Astebro and Elhedhli argues that a simple rule can do quite well making forecasts in a difficult real-world setting.
CITATION
Åstebro, T. and Elhedhli, S. (2006). The Effectiveness of Simple Decision Heuristics: Forecasting Commercial Success for Early-Stage Ventures. Management Science, 52(3), 395-409.
ABSTRACT
We investigate the decision heuristics used by experts to forecast that early-stage ventures are subsequently commercialized. Experts evaluate 37 project characteristics and subjectively combine data on all cues by examining both critical flaws and positive factors to arrive at a forecast. A conjunctive model is used to describe their process, which sums “good” and “bad” cue counts separately. This model achieves a 91.8% forecasting accuracy of the experts’ correct forecasts. The model correctly predicts 86.0% of outcomes in out-of-sample, out-of-time tests. Results indicate that reasonably simple decision heuristics can perform well in a natural and very difficult decision-making context.
Thanks for recommending. it’s just too good to be true… Is prediction really that easy?
August 30, 2011 @ 11:08 am
Dan:
I’m confused. You write about predicting whether a business will fail. But the linked paper considers whether an invention will be commercialized. This seems very different.
September 6, 2011 @ 2:21 pm
Apologize. Have clarified.
September 6, 2011 @ 4:56 pm