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3
Assessment and Forecasting Policy
Futures
RATIONALE
Forecasting is usually a process we associate with typhoons, given that our
country is an excellent laboratory for aspiring meteorologists with all the letters of
the alphabet exhausted with the number of typhoons we have in the Philippines
for a year. Anyway, reflect on the value of weather of forecasts? Or forecasts in
general (assuming you encountered a Seer and told you about your future)? What
edge would that hold for you? Think!

What comes to mind probably is that it gives you a warning of what is to come
and allows you to plan. The same is true for policies. Forecasting in policy
analysis allows government administrators, policy makers and others to
anticipate effects of a proposed alternative. This then enables them to include
provisions necessary to cushion those adverse impacts. Forecasting therefore is
a perfect antidote for policy’s, sometimes destructive, unintended consequences.

Instruction to the Users

This chapter should be accomplished in three (3) weeks/ nine (9) hours. Make
sure to exhaust the allotted time in comprehending the discussions in this portion
and accomplishing the assigned activities, evaluation and assignment. Do not
rush. There is a total of three (3) activities aimed to enrich your understanding of
the topic. All of which must be done deliberately. No skipping (this is not Spotify).

The faculty-in-charge will be contacting you to check whether the tasks spread
throughout this chapter were performed. Accessible platforms will be utilized such
as but not limited to Microsoft Teams, email and text messaging.

Finally, the college puts premium on academic integrity, hence, penalties and
procedures for violations of academic integrity will be strictly applied. Thus,
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occurrences of academic dishonesty may result in the severest possible penalties
being applied.

LEARNING OBJECTIVES
Upon completion of this Chapter, you are expected to be able to:
1. Understand and appreciate the concept and value of forecasting
in policy analysis;
2. Describe the limitations and drawbacks of forecasting;
3. Assess and differentiate the various methods of forecasting policy
outcomes; and
4. Apply forecasting in a particular policy issue.

CONTENT
As a preparatory activity (or a warm-up) in this Chapter, accomplish Activity No.
3.1 below.

ACTIVITY NO. 3.1

Channel your inner Seer, Professor Sybill Trelawney of the Harry Potter Series,
Destiny (Irene Adler) of X-Men comics or any other characters with the ability
to see the future.

In the blank page provided, draw your home municipality/city in 2040 (20
years from now, that is). You may show-off your creative side through using
various drawing and coloring materials.

Below it, write an essay which covers the following guide questions:

1. How would you describe the status quo (present condition) of your home
municipality/city?

2. In your drawing, how different is your home municipality/city in terms of

various aspects such as social, economic, political, and environmental?

3. Do you think that this illustration is far-fetched or close to reality? Explain.

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Forecasting provides a prospective vision of policy outcomes, enlarging
capacities for understanding, control, and societal guidance. Forecasts, whether
based on expert judgment, on the extrapolation of historical trend, or on
technically sophisticated econometric models, are prone to errors based on faulty
or implausible assumptions; the unrecognized effects of institutional incentive
systems; and on the complexity of policy issues in areas ranging from health,
welfare, and education to science, technology, and the environment.

A. Forecasting in Policy Analysis

Forecasting is a set of procedures for creating information about future states of

society on the basis of present and prior information. Forecasts take three
principal forms: extrapolations, predictions, and expert judgments.

1. An extrapolation is a forecast based on the projection of current and

historical trends into the future. Projections often raise questions
about the validity of conclusions based on information produced by
the extrapolation of past trends into the future, for example, through
time-series analysis. Projections are sometimes supplemented by
arguments from authority, for example, the opinions of experts.

2. A prediction is a forecast based on theoretical explanations of why

past trends should repeat themselves in the future. For example,
explanations based on utility theory in economics that predict that
money will become more valuable in future, but at a declining rate. As
this example suggests, theoretical laws such as the law of diminishing
utility of money may explain as well as predict the generative
mechanisms (“causes”) and consequences (“effects”) required of
predictions. Predictions may also be supplemented by forecasts
based on the authority of experts, or the authority of methods such as
econometric modeling.

3. An expert judgment is a forecast based on the professional

experience and authority of persons who are presumed to have
special capabilities to foresee future states of society. Informal
judgments are achieved through a process of intuition, which tends to
occur quickly, automatically, and effortlessly, some would say on the
basis of tacit knowledge.

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 B. The Value of Forecasting

Policy forecasting, whether based on extrapolation, theory, or expert judgment,

provides information about expected policy outcomes. The aims of forecasting
are often similar to those of scientific research, which seeks to both understand,
predict, and control the human and material environment. Efforts to forecast
future societal states are “especially related to control—that is, to the attempt to
plan and to set policy so that the best possible course of action might be chosen
among the possibilities which the future offers.”

Forecasting may contribute to understanding future societal states, thereby

achieving some measure of societal guidance. This is frequently accomplished
by investigating the effects of past policies and the conditions under which they
arise on future policies, an aim suggesting that the future is determined by the
past. Although there is a measure of truth in this suggestion, forecasts may also
enable policymakers to actively shape the future, despite what may have
occurred in the past. The question here is one of identifying the values that can
and should guide future action. This leads to a second and more important
question. Even if the values that guide current actions can be identified, it is
questionable whether these values will be retained in the future. Therefore, so-
called “guiding predictions” may be incomplete unless they evaluate the
desirability of future societal states, an act that would seem to require that we
base forecasts on future rather than present preferences. Paradoxically, we must
predict future values before we can meaningfully predict future states of society.

A concern with future values may complement traditional social science research
that seeks predictions based on past trends. Although the past may provisionally
determine the future, this will hold true only if thoughtful reflection and analysis
do not lead policymakers and citizens to change their values and behavior, or if
unpredictable factors and surprises do not intervene to create significant social
changes, including those that may be regarded as irreversible processes of chaos
and emergent order.

The three types of forecasting, singly and in combination, are nevertheless

valuable in reducing some of the uncertainty of attempts to foresee expected
policy outcomes, whether of policies are representative of the status quo or of a
range of new policies. Armstrong, who has done some of the most thorough,
systematic, and practically useful studies of evidence- based forecasting, has
reviewed hundreds of forecasts conducted in the last 25 years. Among other
results are findings that:

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  Predictive forecasts using causal models are approximately three times
more accurate than simple extrapolative forecasts. In some cases, these
predictive forecasts achieved more than a 70 percent reduction in error, as
compared with little reduction in the error of extrapolative forecasts.

 Forecasts based on expert judgment that employed multiple rounds (Delphi

technique) improved accuracy in about 70 percent of cases, as compared
with methods using one-time expert judgment as part of a largely
unstructured process, which is the standard procedure used with panels of
experts in areas such as health and medicine, the environment, and the
economy.

 Predictive forecasts based on theoretical models to not appear to be more

accurate than forecasts based on expert judgment, although forecasts
based on theoretical models plus expert judgment outperform extrapolative
forecasts.

C. Limitations of Forecasting

Issues of unpredictability, however, are related to well- documented strengths

and limitations of various types of forecasts.

1. Forecast accuracy. The accuracy of relatively simple forecasts based

on the extrapolation of trend in a single variable, along with relatively
complex forecasts based on models incorporating many dozens of
variables, has been limited. In 2015, for example, the Obama White
House underestimated the 2014 budget increase by $98 billion, or
20.2 percent. A similar record of inaccuracy, defined as the variability
of estimates of unemployment, inflation, and economic growth
characterizes the estimates of the largest econometric forecasting
firms such as Chase Econometrics, Wharton Econometric
Forecasting Associates, and Data Resources, Inc. In Ireland, a
country experiencing significant unemployment, the average absolute
error (ignoring negative and positive values) in forecasting the growth
of unemployment in the period 1986–2005 was approximately 4
percent, a rather large error considering the hundreds of thousands
of workers affected.

2. Comparative yield of forecasting methods. The accuracy of

predictions based on complex theoretical models of the economy and
of the energy resource system has been roughly comparable to
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 forecasts based on the extrapolation of trend and on expert judgment.
If one of the important advantages of simple models is sensitivity to
surprising or counterintuitive events, simple models have a
comparative advantage over their highly complex counterparts,
because the users of highly complex models tend to employ them
mechanistically, with little attention to surprising outcomes.

As Ascher cautions, if the implications of a forecast are obvious when

they are recognized without the aid of a complex model, the value of
using one is questionable. If the implications are surprising, the
strength of a complex model presumably lies in its ability to identify
model assumptions and implications. Yet it is precisely these
assumptions and implications—for example, the assumption that a
predicted increase in gasoline consumption will not lead to changes
in gasoline taxes—that are overlooked or discarded when they are
inconsistent with the assumptions of models.

3. Context. The assumptions of models and their results are sensitive to

institutional, temporal, and historical contexts. Variations in
institutional incentive systems are a key aspect of differences in these
contexts, as represented by contrasts among government agencies,
businesses, and nonprofit research institutes. Forecasting accuracy
tends to be greater in university and other nonprofit research
institutions than in government agencies or in businesses. In turn, the
temporal context of a forecast, as represented by the length of time
over which the forecast is made (e.g., 1 year versus 5 years) affects
forecast accuracy. The longer the period, the less accurate the
forecast. Finally, the historical context of forecasts affects accuracy.
The comparatively greater complexity and uncertainty of recent
historical periods diminishes forecast accuracy, a pattern that is
evident in the growth of forecasting errors over the past 50 years.

D. Nature and Aim of Approaches to Forecasting

Once goals, objectives, and alternatives have been identified, it is possible to

select an approach to forecasting. The analyst must (1) decide what to forecast,
that is, determine what the aim of the forecast should be; (2) decide how to make
the forecast, that is, select the basis of the forecast; and (3) choose methods that
are most appropriate for the aim and basis selected.

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Aims and Bases of Forecasts

The aim of a forecast is the point of reference of a projection, prediction, or expert

judgment. Forecasts have four aims:

1. Forecast the consequences of existing policies. Forecasts may be

used to estimate changes that are likely to occur if no new actions
are taken. The status quo (doing nothing) is the policy of taking no
new actions. Examples are population projections of the U.S.
Bureau of the Census and projections of female labor force
participation made by the U.S. Bureau of Labor Statistics.

2. Forecast the consequences of new policies. Forecasts may be

used to estimate changes in society that are likely if new policies
are adopted. In this context, energy demand in 1995 may be based
on assumptions about the adoption of new policies to regulate
industrial pollution.

3. Forecast the contents of new policies. Forecasts may be used to

estimate changes in the content of new policies. Some years ago,
the Congressional Research Service forecasted the adoption of a
4-week annual paid vacation on the assumption that the
government and labor unions will follow the lead of European
countries, most of which have adopted 4- or 5-week annual paid
vacations for workers.

4. Forecast the behavior of policy stakeholders. Forecasts may be

used to estimate the probable support and opposition to newly
proposed policies. For example, techniques for assessing political
feasibility are used to estimate the probability that different
stakeholders will support a policy at various stages of the policy
process, from adoption to implementation.

The basis of a forecast is the set of assumptions or data used to estimate

the consequences of existing or new policies, the content of new policies,
or the behavior of stakeholders. As we have seen, there are three major
bases of forecasts: trend extrapolation, theory, and expert judgment. Each
of these bases is associated with one of the three forms of forecasts
previously discussed.

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Trend extrapolation is the extension into the future of trends observed in
the past. Trend extrapolation assumes that what has occurred in the past
will also occur in the future, provided that no new policies or unforeseen
events intervene to change the course of events. Trend extrapolation is
based on inductive logic, that is, the process of reasoning from particular
observations (e.g., historical time-series data) to general conclusions or
claims. In trend extrapolation, we usually start with time-series data, project
past trends into the future, and then justify the forecast on the basis of
assumptions about regularity and persistence.

To appreciate what is meant by trend extrapolation, take a look at Figure 6

below and accomplish Activity No. 3.2.

Figure 6. Japan’s Population Pyramid

Source: nippon.com

A population pyramid is an illustration used in demography to study age and

sex distribution in a country, state or a particular territory. The red-colored
(upper tier) represents the elderly population (65 years old and above),
green color (middle tier) for working population (15 to 64 years old) and the
yellow color (lower tier) for the children (0 to 14 years old).

With the SDG goal on gender equality, this figure also shows the population
of male versus female. Male population on the left side of the graph while
the female population on the right side.

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 ACTIVITY NO. 3.2

Given the explanations above on the population pyramids of Japan for years
1960, 2010 and 2060, answer the following questions using the space provided:

1. What can you say about the trend for male-female distribution in Japan
from 1960 to 2060?

2. How about the trend in age distribution?

3. What do you think is the reason why demographers study and analyze age
and sex distribution in a country? Does it have any implications in the
government policies, plans and programs? Explain.

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 Theoretical assumptions are systematically structured and empirically
testable laws and propositions that make predictions about the occurrence
of one event on the basis of another. Theoretical assumptions are causal
in form, and their role is to explain and predict. The use of theoretical
assumptions is based on deductive logic, that is, the process of reasoning
from general statements, laws, or propositions to particular sets of
information and claims. For example, the proposition that in “postindustrial”
society the predictive knowledge of policy analysts is an increasingly scarce
resource that enhances their power may be used to make the claim that the
growth of professional analysts in government means that they will have
more power than policymakers in coming year.

Informed judgment refers to knowledge based on experience and insight,

rather than inductive or deductive reasoning. These judgments are usually
expressed by experts or knowledgeables and are used when theory and/or
empirical data are unavailable or inad- equate. Informed judgments are
based on abductive (retroductive) logic, that is, a process of reasoning that
begins with claims about the future and then works backwards to the
information, assumptions, or theory that supports a claim. A good example
of informed judgment as a basis of forecasts is the use of scientists or other
knowledgeables to make conjectures about future changes in technology.
Through abductive logic, experts may forecast a scenario of automated
highways with adaptive automobile autopilots by the year 2050.

Choosing Methods and Techniques

The choice of an aim and a basis of a forecast helps direct the analyst toward
appropriate methods. However, there are literally hundreds of forecasting
methods from which to choose. A useful way to simplify the choice of these
methods is to group them according to the bases of forecasts discussed earlier.

1. Extrapolative Forecasting

Methods of extrapolative forecasting generate forecasts of future societal states

based on past, current and historical data. Extrapolative forecasting is often
based on time-series analysis, which involves the analysis of numerical values
collected at multiple points in time and presented sequentially. Time-series
analysis provides summary measures of the amount and rate of change in past
and future years. Extrapolative forecasting is used to project economic growth,
population decline, energy consumption, quality of life, and agency workloads.
Extrapolative forecasting rests on three assumptions:
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