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The value of multi-year forecasts in sequential decision-making

Authors: Luca Anna Palasti*, University of Colorado Boulder, William R. Travis, University of Colorado Boulder and Western Water Assessment
Topics: Human-Environment Geography, Applied Geography, Business Geography
Keywords: decision making, forecasts, forecast value analytics, risk aversion, expected utility, climate change
Session Type: Poster
Presentation File: No File Uploaded

To provide social value, multi-year forecasts must be founded on at least three conditions: (1) some measurable skill; (2) an array of feasible user response options, and (3) a decision process for optimal, or at least satisficing outcomes of sequential decisions. Several resource management and production systems entail a “year-two” to “year-nth” problem because decisions made in the initial year create carry-over effects and constrain (or enhance) options in subsequent years. Therefore, we develop a simulation model to test for forecast value in a multi-year sequence of decisions by a cattle ranch enterprise whose net income is subject to seasonal precipitation, production and protection choices, and multi-year effects of those choices. The model combines business decisions and forecast value analytics. Additionally, forecast skill is also evaluated for different goals, including maximum expected utility, risk aversion, and satisficing. Finally, since multi-year forecasts and sequences of wx/cx conditions blend into decadal conditions, adaptation decisions made in response to multi-year forecasts link adaptation to longer-term climate change. As a result, the major question for each user involves; when the incremental choices supported by multi-year forecasts become choices about transforming resource systems to suit new, long term conditions.

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