The Use of Alternative Predictions in Long-Term Inference into the Future (with special Reference to Water Demand)

Pawlowski, Z. (1978). The Use of Alternative Predictions in Long-Term Inference into the Future (with special Reference to Water Demand). IIASA Research Report. IIASA, Laxenburg, Austria: RR-78-015

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Abstract

This paper, the eighth in the IIASA water demand series, reports on the use of alternative predictions in long-term inference into the future, with special reference made to forecasting water demands. Following an outline of several standard approaches for determining the values of explanatory variables of an econometric model, a new method of building "optimistic" and "pessimistic" predicitons is presented. The interval defined by these two predictions provides information on what can be expected when extreme cases are excluded from consideration.

Based on this material, the concept of alternative predictions is introduced and illustrated by several examples that refer explicitly to water demand forecasting. This approach can be used for assessing the future values of explanatory variables of the econometric model as well as for final prediction of the future values of the endogenous variable. The paper ends by presenting a method of building alternative predictions that minimizes the sum of expected losses due to incorrect prediction and of costs due to the initiation of some actions on the assumption that an alternative prediction will prove correct. Practical applicability of the proposed methods is demonstrated and recommendations are made as to how they could be extended further.

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