Can we talk about probabilistic forecasting for a minute or two?
Abstract
One of the most exciting developments in the time series space over the last few years has been the advances in probabilistic forecasting capabilities, both in terms of modeling approaches and available tools. Yet adoption of probabilistic forecasting methods has been slow amongst the wider forecasting community, and data science teams and business stakeholders are missing out on the opportunities provided by more accurate characterization of the uncertainty, including their correlations.
In this presentation, we will point out that most established point forecasting approaches can be easily augmented to produce distributional forecasts, making it very hard to distinguish between the two types of approaches in practice. The gravitation towards using a single number as a forecast due to its explainability and operability makes the concrete benefits and ROI of upgrading to probabilistic forecasting approaches ambiguous at best, thus contributing to the challenges with adopting the newer probabilistic models.
We will then argue for a reframing of the probabilistic vs. point forecasting distinction, not in terms of modeling approaches and pipeline configurations, but as a fundamental first principles based distinction based on the available data and the use case requirements. Probabilistic forecasting should not be seen as an add-on to point forecasting, nor as an opportunity for an incremental improvement on uncertainty bounds. It should be clear that certain applications mandate probabilistic forecasting because point forecasting, no matter how accurate, will lead to wrong decision making. This distinction should be analogous to how the distinction between regression and classification use cases is defined, or the distinction between clustering and dimensionality reduction use cases is defined.
We will also discuss possible criteria for this first principles based distinction between point forecasting use cases and probabilistic use cases, and argue for why such a reframing might be beneficial for practitioners and business users. This article aims to initiate a discussion on making probabilistic forecasting as a principle that is more accessible to practitioners and non-technical stakeholders; that it is not an improvement to point forecasts: it is a critical must-have for many (or most) business forecasting use cases.
In this presentation, we will point out that most established point forecasting approaches can be easily augmented to produce distributional forecasts, making it very hard to distinguish between the two types of approaches in practice. The gravitation towards using a single number as a forecast due to its explainability and operability makes the concrete benefits and ROI of upgrading to probabilistic forecasting approaches ambiguous at best, thus contributing to the challenges with adopting the newer probabilistic models.
We will then argue for a reframing of the probabilistic vs. point forecasting distinction, not in terms of modeling approaches and pipeline configurations, but as a fundamental first principles based distinction based on the available data and the use case requirements. Probabilistic forecasting should not be seen as an add-on to point forecasting, nor as an opportunity for an incremental improvement on uncertainty bounds. It should be clear that certain applications mandate probabilistic forecasting because point forecasting, no matter how accurate, will lead to wrong decision making. This distinction should be analogous to how the distinction between regression and classification use cases is defined, or the distinction between clustering and dimensionality reduction use cases is defined.
We will also discuss possible criteria for this first principles based distinction between point forecasting use cases and probabilistic use cases, and argue for why such a reframing might be beneficial for practitioners and business users. This article aims to initiate a discussion on making probabilistic forecasting as a principle that is more accessible to practitioners and non-technical stakeholders; that it is not an improvement to point forecasts: it is a critical must-have for many (or most) business forecasting use cases.
