Forecasting Bias: From Weather to Analyst Research

Forecasting Bias: From Weather to Wall Street by David Foulke, Alpha Architect

Providers of forecasts often want to be right, but they also don’t enjoy surprising people on the downside. People don’t like nasty surprises.

For instance, it is by now a well-known phenomenon that weather forecasters tend to predict rain more often than it tends to occur. In a famous study, it was shown that when the Weather Channel predicted a 20% chance of rain, it only ended up raining 5% of the time. This is known as “wet bias,” since the Weather Channel is...