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Method 1 always gives estimates closer to real demand than Method 2, so it is not difficult to
make a decision in this case. We can confirm this by calculating errors.
METHOD 1
yt 20 22 26 19 14 101 20.2
Et 3 −1 2 −3 −3 −2 −0.4
| Et | 3 1 2 3 3 12 2.4
(Et )2 9 1 4 9 9 32 6.4
The average error is -0.4, indicating that the estimates are slightly biased because the average is
0.4 more.
The average absolute error is 2.4, indicating that estimates deviate on average 2.4 from actual
demand.
The mean squared error is 6.4, which is not as clear cut, but useful for other analyzes.
METHOD 2
T 1 2 3 4 5 Total Mean
yt 20 22 26 19 14 101 20.2
Et 5 2 -4 −5 −5 1 0.2
| Et | 5 2 4 5 5 21 4.2
(Et )2 25 4 16 25 25 95 19
The average error is 0.2, indicating that each estimate is slightly biased as the average is less than
0.2.
The mean absolute error is 4.2, so the forecast deviates by an average of 4.2 from actual demand.
Root mean square error is 19.0.
The first method has a lower mean absolute error and root mean square error and is the best
choice. The second method has a slightly lower error measured by the average error.
Thus, the chance of rain every day is 70%, and that what happens on one days (rain or shine) was
not in any way dependent on what happened the day before.
1. What are the chances of getting 15 days of rain during the next 30 days?
In this case;
n =number of days = 30
The two variables are exactvalue, for example given that one apple costs 10 NTD, so 2 apples
cost 20 NTD. But this case is talking about chance which is not exact value. It means the
probability of rain today is perhaps 80% as opposed to 70%. Thus, Joe should concern that this is
the probability. He should think about the probability methods and 70% chance of rain every day
doesn’t depend on the day before.