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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.
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. For example, we may prefer one model to generate a range, but use a second scenario-based model to “stress test” the range.
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. Image Source: Wikimedia Commons.
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