The Effectiveness of Simple Decision Heuristics: A Case Study of Experts' Forecasts of the Commercial Success of Early-Stage Ventures

30 Pages Posted: 3 Mar 2013

See all articles by Thomas B. Astebro

Thomas B. Astebro

HEC Paris - Economics and Decision Sciences

Samir Elhedhli

University of Waterloo - Department of Management Sciences

Date Written: October 17, 2003

Abstract

We investigate the decision heuristics used by experts to forecast that early-stage ventures are subsequently commercialized. Experts evaluate 37 project characteristics and subjectively combine data on all cues by examining both critical flaws as well as positive factors to arrive at a forecast. A conjunctive model is used to describe their process which sums good and bad cue counts separately. This model achieves a 94.1% classification accuracy of the experts' correct forecasts of 561 projects. The model correctly predicts 86.0% of outcomes in out-of-sample, out-of-time tests. Results indicate that reasonably simple decision heuristics can perform very well in a natural and very difficult decision-making context.

Keywords: Judgment, heuristic, forecast, decision-making, rules

JEL Classification: C62, C92

Suggested Citation

Astebro, Thomas B. and Elhedhli, Samir, The Effectiveness of Simple Decision Heuristics: A Case Study of Experts' Forecasts of the Commercial Success of Early-Stage Ventures (October 17, 2003). Available at SSRN: https://ssrn.com/abstract=579003 or http://dx.doi.org/10.2139/ssrn.579003

Thomas B. Astebro (Contact Author)

HEC Paris - Economics and Decision Sciences ( email )

Jouy-en-Josas Cedex, 78351
France

HOME PAGE: http://www.hec.edu/Faculty-Research/Faculty-Directory/ASTEBRO-Thomas

Samir Elhedhli

University of Waterloo - Department of Management Sciences ( email )

Waterloo, Ontario N2L 3G1
Canada

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