A Forecaster Is Assessing Two Different Models for Demand

question 15

Essay

A forecaster is assessing two different models for demand. The output from each model and the actual demand data appear in the table. Use MAD and a tracking signal to compare the two models. Which model does a better job of forecasting?
$$\begin{array} { | c | c | c | } \hline \text { Demand } & \text { Model 1 } & \text { Model 2 } \\\hline 52 & 55.0 & 51.0 \\\hline 52 & 54.7 & 51.9 \\\hline 60 & 54.4 & 52.0 \\\hline 56 & 55.0 & 59.2 \\\hline 58 & 55.1 & 56.3 \\\hline 58 & 55.4 & 57.8 \\\hline 52 & 55.6 & 58.0 \\\hline 57 & 55.3 & 52.6 \\\hline 53 & 55.4 & 56.6 \\\hline 57 & 55.2 & 53.4 \\\hline\end{array}$$

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Definitions:

Weak Axiom

A principle in consumer choice theory stating that if a consumer prefers bundle A over bundle B when both are available, then the consumer should not prefer B over A when prices change but A and B remain affordable.

Revealed Preferences

A theory that determines preferences by observing consumer choices and behaviors rather than asking them directly.

Francs

A currency formerly used in France and other countries, replaced by the euro in many areas.

Strong Axiom

Often refers to the strong axiom of revealed preference, which is a more stringent condition than the weak axiom, ensuring choices are consistent across different sets of available options.