1. Assume you were to use αvalues of 0.1, 0.5, and 0.

9 in a simple exponential smoothing

model. How would these different α values weight past observations of the variable to be
forecast?
2. How would you know which of these α values provided the best forecasting model?
3. If the α = 0.9 value provided the best forecast for your data, would this imply that you
should do anything else?
4. Does exponential smoothing place more or less weight on the most recent data when
compared with the moving-average method?
5. What weight is applied to each observation in a moving-average model?
6. Why is smoothing (simple, Holt’s, and Winters’) also called exponential smoothing?

The simple exponential smoothing method is useful when the time series data does not
have any significant trend or seasonality component. In this case, weights in geometric
progression are associated to all the past values. For example, α is attached to the most
recent observed value, (1 – α)α to the next most recent value, α(1 – α)2 to the next and so
on.
When the value of is closer to 0, less weight is placed on the recent data and more on the
past data. On the contrary, for the value of closer to 1, more weight is placed on the
recent data and less on the past data. So, for , more weight is towards the old data and for,
more weight is towards the recent data. For , more or less equal weight is given to the
entire historical data in the time series.