A forecast bias occurs when there are consistent differences between actual outcomes and previously generated forecasts of those quantities; that is, forecasts may have a general tendency to be too high or too low. A normal property of a good forecast is that it in not biased..

As a quantitative measure, the "forecast bias" can be specified as a probabilistic or statistical property of the forecast error

Forecast error

In statistics, a forecast error is the difference between the actual or real and the predicted or forecast value of a time series or any other phenomenon of interest....

. A typical measure of bias

Bias (statistics)

A statistic is biased if it is calculated in such a way that it is systematically different from the population parameter of interest. The following lists some types of, or aspects of, bias which should not be considered mutually exclusive:...

 of forecasting procedure is the arithmetic mean

Arithmetic mean

In mathematics and statistics, the arithmetic mean, often referred to as simply the mean or average when the context is clear, is a method to derive the central tendency of a sample space...

 or expected value

Expected value

In probability theory, the expected value of a random variable is the weighted average of all possible values that this random variable can take on...

 of the forecast errors, but other measures of bias are possible. For example, a median-unbiased forecast would be one were half of the forecasts are too low and half too high: see Bias of an estimator

Bias of an estimator

In statistics, bias of an estimator is the difference between this estimator's expected value and the true value of the parameter being estimated. An estimator or decision rule with zero bias is called unbiased. Otherwise the estimator is said to be biased.In ordinary English, the term bias is...

.

In contexts where forecasts are being produced on a repetitive basis, the performance of the forecasting system may be monitored using a tracking signal

Tracking signal

In statistics and management science, a tracking signal signal monitors any forecasts that have been made in comparison with actuals, and warns when there are unexpected departures of the outcomes from the forecasts...

, which provides an automatically maintained summary of the forecasts produced up to any given time. This can be used to monitor for deteriorating performance of the system.

Reference class forecasting

Reference class forecasting

Reference class forecasting is the method of predicting the future, through looking at similar past situations and their outcomes.Reference class forcasting predicts the outcome of a planned action based on actual outcomes in a reference class of similar actions to that being forecast. The theories...

 was developed to reduce forecast bias.

See also

• Calculating demand forecast accuracy
  Calculating Demand Forecast Accuracy
  Calculating demand forecast accuracy is the process of determining the accuracy of forecasts made regarding customer demand for a product.-Importance of forecasts:...
  
  
• Optimism bias
  Optimism bias
  Optimism bias is the demonstrated systematic tendency for people to be overly optimistic about the outcome of planned actions. This includes over-estimating the likelihood of positive events and under-estimating the likelihood of negative events. Along with the illusion of control and illusory...
  
  
• Demand forecasting
  Demand forecasting
  Demand forecasting is the activity of estimating the quantity of a product or service that consumers will purchase. Demand forecasting involves techniques including both informal methods, such as educated guesses, and quantitative methods, such as the use of historical sales data or current data...
  
  
• Forecast skill
  Forecast skill
  Skill in forecasting is a scaled representation of forecast error that relates the forecast accuracy of a particular forecast model to some reference model....