Types of Demand Forecasting

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Demand forecasting is an activity that aims to estimate the amount of goods and services that the consumers will purchase. It uses methods based on the assessment made by economic experts such as game theory and prediction market. Demand forecasting might also be based on quantitative research. Such techniques are extrapolation and causal models.

Prediction Market

  • Prediction markets are demand forecasting techniques used to determine the demand for goods and services from the consumers. Such markets are virtually based and take the prices from real markets. Experts then analyze the data taking into account current state of economic development and economic factors such as employment, inflation and productivity. To produce satisfactory research results, economists also consider future developments in the economy -- for example, future employment policies, plans for public financing and predicted economic growth.

Game Theory

  • The game theory explores the demand of individuals that is unlikely to change. Economists apply consumers' behavior to the current economic environment in order to determine whether something might influence the steady demand for goods and services. Experts also consider different strategies of businesses and governmental institutions that might change the demand exercised by the public.

    The game theory is a mathematical approach aiming to achieve an equilibrium between the main players (the consumers) and the economic developments that determine the extent of demand (such as business plans and governmental actions).

Extrapolation

  • Extrapolation is a demand forecasting method based on mathematical considerations. This approach relies on quantitative research to obtain data about consumers' behavior. This means that it uses information that is already available to determine future developments in the levels of demand for services and goods.

    For example, if the demand for certain goods has been increasing steadily for 15 months, it is unlikely that it would decrease in the 16th month. Such predictions extend up-to-date data to future levels relying only on the current economic environment.

Causal Models

  • Causal models are a specific method for demand forecasting that relies on data obtained in the current stage of economic development. It explores the relationship between a certain event and its effect on consumers. Thus, the data can produce trends which can be used to determine the future demand.

    For example, the incorporation of 3D technology in multimedia devices has triggered high demand for production that supports 3D format. Hence, it can be expected that the demand for 3D production will increase with the technology being widely incorporated in mobile devices, television sets and gaming consoles.

References

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