The ABC Floral Shop from problem 3 is considering fitting various forecasting models on the first seven days of demand and using the second seven days as a hold-out sample for comparing the pre diction accuracy of the models. They have decided to use α = .25, but aren't sure what starting value of forecast, F1, to use.
a. Try values of F1 = 160, F2 = 170, and F3 = 180 to determine the best exponential model for the first seven days using the minimum total absolute deviation as the criterion. You may modify the spreadsheet from problem 8 for the calculations.
b. Compare the best model from part a to a three period moving average model on the second set of data. Which one has the smallest sum of absolute errors?
c. What principles does this problem illustrate?