Probabilistic demographic forecasts

Abstract

The Norwegian parliament (“Stortinget”) has decided to buy 52 new JSF jet fighters type F35. When the decision was taken, the price for one F35 was unknown because the plane was still under construction. Therefore, the Stortinget demanded a total cost forecast that had a 50% chance of being accurate. In 2012, the price estimate was NOK 61 billion (approximately EUR 6 billion). In addition, the Stortinget wanted to have a cost estimate that had an 85% chance of being accurate. This estimate was NOK 72 billion; see https://www.regjeringen.no/no/dokumenter/prop73-s-20112012/id676029/sec9, Section 2.4.4. Requesting a probabilistic cost forecast with a 50% or an 85% chance of being accurate is established practice for large (>NOK 500 million) public projects in Norway. Probabilistic forecasts are necessary because the future is uncertain. There are many different possible futures, and some are more likely to come to pass than others. A probabilistic forecast, as opposed to a deterministic forecast, quantifies the uncertainty about future developments. While a probabilistic forecast is not necessarily more accurate than a deterministic forecast, the former contains more information, which is useful for planning purposes. Let us assume that in a specific area, only a deterministic forecast of the relevant variable(s) is available. This may leave room for political decisions to be made. An example is the “shutdown” of the U.S. government in December 1995. President Clinton proposed a seven-year budget plan that would produce a $115 billion deficit over the seven-year period, according to the economic forecasts of the Congressional Budget Office (CBO). However, the Office of Management and Budgets (OMB) estimated rather more optimistically that the budget would be balanced at the end of the period. Republican leaders demanded that Clinton propose a plan that would be balanced when using the CBO numbers, rather than the OMB’s; see https://www.washingtonpost.com/news/wonk/wp/2013/09/25/hereis-every-previous-government-shutdown-why-they-happened-and-how-theyended/?utm term=.4bb10057f0d9, shutdown # 17.