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June 17, 2011 5:08 pm

Something for the weekend: business school research

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Professional forecasting - predicting trends such as gas prices or housing costs has important ramifications for society. Now an academic at the Sloan School of Management at MIT has some research which could help to make these predictions even more accurate.

PJ Lamberson, a senior lecturer in the systems dynamics group, says it is better to use a large and diverse group of forecasters, even if in the past they have made mistakes, rather than a smaller group of forecasters, even if they have a record of accuracy.

“By drawing from a large pool, you are able to collect information from forecasters who are different from one another and can present a fuller range of views and outlooks,” he says.

“Even if some of the individuals in the large group are not that accurate, their errors will cancel each other out. This law of large numbers logic doesn’t hold when forecasts are drawn from small groups.”

Mr Lamberson, who co-authored the paper “Optimal forecasting groups” with Scott Page, a professor of complex systems, political science and economics at the University of Michigan, Ann Arbor, says that trends can be picked up when information is gathered from huge groups of people. He cites the example of Google which uses technology based on search requests. Spikes in searches using the term “sore throat” for example can be an indication that there is flu outbreak. However the authors warn forecasters to be alive to the dangers of online manipulation, where for example individuals can try to “game the system” by using computers with fake addresses so that although information looks as if it comes from a genuine source in reality it does not.

The paper can be read in a forthcoming issue of Management Science.

When promoting an item or a consumer service, advertisers will go out of their way to accentuate the positive. In this way they reason, consumers will be more likely to buy the relevant goods or use the service. However, their reasoning may be faulty.

“Small doses of mildly negative information - a so-called blemishing effect - may actually strengthen a consumer’s positive impression of a product or service.,” claim a group of academics.

“We find that as long as the negative information about a product is minor, your pitch [to a consumer] might be more persuasive when it calls attention to that negative, especially if consumers have already learned some positive things,” says Baba Shiv,

Using an example of restaurant, the authors of the research say that if the majority of the reviews are positive, a negative, such as the lack of car parking may - if parking is not a central factor to your enjoyment - actually enhance the positives. making it seem even more positive.

But consumers need to have discovered the positive information first, before coming across the negative and the “blemish” must not be too strong say the writers. The paper When blemishing leads to blossoming; the positive effe ct of negative information, will be published in a forthcoming Journal of Consumer Research. It was co-authored by Danit Ein-Gar of the Recanati Graduate School of Business, Tel Aviv University and Zakary Tormala, associate professor of marketing at Stanford GSB.

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