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In 2004, the board of regents responsible for all public higher education funding in a large Midwestern state hired a consultant to develop a series of enrolment forecasting models, one for each college. These models used historical data and exponential smoothing to forecast the following year's enrolments. Based on the model, which included a smoothing constant (α) for each school, each college's budget was set by the board. The head of the board personally selected each smoothing constant, based on what she called her "gut reaction and political acumen."
What do you think the advantages and disadvantages of this system are? Answer from the perspective of
a. The board of regents and
b. The president of each college
How this can model be abused and what can be done to remove any biases? How can a regression model be used to produce results that favour one forecast over the other?
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