Reviews of Important Papers on Forecasting
Before 1985 Reviews
Review of:

David F. Larcker and Lessig V. Parker (1983), “An examination of the linear and retrospective process tracing approaches to judgment modeling,” Accounting Review, 58, 58-77.

Judgmental decisions have been 'predicted' from inferences based on statistical analysis of the data used by the decision-maker. Alternatively, predictive models have been developed by asking decision-makers to describe how they made their decisions. Sometimes the questioning is done as the decisions are made, sometimes after. The literature on the statistical analysis of judgment (an area typically referred to as ‘bootstrapping’) has been critical of the latter approach of questioning after the decisions have been made. The study compared this post-decision questioning, ‘retrospective process tracing models,’ with the statistical approach. Buy/no-buy decisions were made for 45 stocks by 31 subjects. Each stock was described by six relevant and obvious variables. The statistical inference approach, done by discriminant analysis, matched the actual decision in 73 per cent of the cases. The retrospective process tracing model approach (done immediately after the completion of all stock decisions) was significantly better (p < 0.05), and it matched the actual for 85 per cent of the decisions. The gain came at some cost, as the retrospective approach required l hour with each subject. The authors caution that the results may not be applicable to more complex problems or to problems where irrelevant variables are present. They recommend a combined use of discriminant models, retrospective process tracing models, and concurrent process tracing (often called protocols). It is a thorough study and the literature review brings together a number of relevant findings from accounting, marketing, and psychology. Although this is a tedious and long-winded paper with much jargon, it is important, and will be rewarding to those who manage to stick with it.