The Effectiveness of Simple Decision Heuristics: Forecasting Commercial Success for Early-Stage Ventures

T. B. ASTEBRO, S. Elhedhli

Management Science

March 2006, vol. 52, n°3, pp.395-409

Departments: Economics & Decision Sciences, GREGHEC (CNRS)

Keywords: Judgment, Heuristic, Forecast, Decision making, Statistical prediction, Early-stage ventures

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 and 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 91.8% forecasting accuracy of the experts' correct forecasts. 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 well in a natural and very difficult decision-making context.