An Expanded Prediction-Realization Diagram for Assessing Forecast Errors

Forty years ago, Henri Theil created a prediction-realization diagram to compare forecasts with the actual changes that were realized. The diagram emphasizes and element of accuracy that is not accounted for in traditional metrics—the accuracy with which you forecast the correct direction of change. Roy expands upon the original diagram to incorporate evaluation of whether the forecasts are improvements upon the standard benchmark of naïve (no-change) forecasts. Copyright International Institute of Forecasters, 2007