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This classification is based on the purpose, horizon, update frequency and uncertainty of the forecast. A single model may also not shed light on the uncertainty range we actually face. It provides the occasion for deeper exploration of which inputs that can be influenced and which risks can be proactively managed.
For example in 2003, when I visited Zagreb in Croatia for the first time – they had mobile phone text based payment for car parking. He was talking about something we call the ‘compound uncertainty’ that must be navigated when we want to test and introduce a real breakthrough digital business idea. This is not a new observation.
Because of this trifecta of errors, we need dynamic models that quantify the uncertainty inherent in our financial estimates and predictions. Practitioners in all social sciences, especially financial economics, use confidence intervals to quantify the uncertainty in their estimates and predictions. and an error term ??
In this second phase executive leaders will need to make critical business decisions with even less data and with more uncertainty. Many highly leveraged firms will be at risk; debt will be at record levels in public and private so anyone who has cash will be predatory. But not all firms will get past phase 2.
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