Time-series forecasting model: cheap changes everything!

Hello, my name is Barry Keating and I'm on the faculty of the Mendoza College of Business at the University of Notre Dame, where I've taught forecasting and analytics courses for over 30 years. Cheap changes everything.

When the price of something falls, we use more of it. It's happening right now with business forecasting. If economists are good at one thing, it's cutting through the hype. To understand how forecasting or prediction will affect your organization, you need to know precisely what price has changed and how that price change will cascade throughout the broader economy. Everywhere you look, pundits are referencing the new economy, everyone that is except economists. Economists do not see a new economy or a new economics. This looks just like the old economy. The rise of the Internet and online shopping caused a drop in the cost of distribution, a drop in the cost of communication, and a drop in the cost of search. When the price of something fundamental drops drastically, the whole world can change. Technological change makes things cheap that were once expensive. Computers do arithmetic and nothing more, but in the process, the cost of calculation has dropped dramatically. Alan Turing often referenced Lady Lovelace's objection. She said, computers cannot think. She was, of course correct, but computers can calculate cheaply and quickly. Data collection and data storage has also become cheap. Data is the raw material needed for accurate prediction. What will the new forecasting technologies make cheap? Prediction. Prediction is the process of filling in the missing information. Prediction takes what you have called data and uses it to generate information that you don't have. A cheaper prediction will mean more predictions. This is simple economics. When an input such as prediction becomes cheap, this can enhance the value of other things. Economists call these complements. When a prediction is cheap, there will be more predictions and there will be more compliments to prediction. The single most common question of corporate executives these days is, how will forecasting and analytics affect our business strategy? With the pandemic,