Problem
Forecasters often provide only point forecasts, which are their best guesses as to an upcoming event. For example, an economic forecaster might predict that U.S. gross national product (GNP) will increase at a 3% annual rate over the next three months. Occasionally a forecaster also will provide an estimate of the degree of confidence in the point forecast to indicate how sure (or unsure) the forecaster is. In what sense can your answers to Problem 8.12 be interpreted as forecasts? What advantages do subjective probability distributions have over typical point forecasts? What disadvantages? How could a decision maker use probabilistic forecasts such as those in Problem 8.12?
Problem 8.12
Assess these fractiles for the following uncertain quantities: 0.05 fractile, 0.25 fractile (first quartile), 0.50 (median), 0.75 fractile (third quartile), and 0.95 fractile. Plot your assessments to create graphs of your subjective CDFs.
a. The closing Dow Jones industrial average (DJIA) on the last Friday of the current month.
b. The closing DJIA on the last Friday of next year.
c. The exchange rate, in Japanese yen per dollar, at the end of next Monday.
d. The official high temperature at O'Hare International Airport tomorrow.
e. The number of fatalities from airline accidents in the United States next year.
f. The number of casualties from nuclear power plant accidents in the United States over the next 10 years.
g. The value of the next jackpot won in the California state lottery.
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.