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Single order exponential smoothing

United Airways has tried out single order exponential smoothing for forecasting passenger demand. Below are recent results using alpha = 0.2, 0.4. and 0.6. Which alpha is best, based on this limited data?

Actual Forecast with Alpha Equal to
Period Passengers 0.2 0.4 0.6

-3 4,200 3,078 3,184 3,210
-2 4,900 3,302 4,090 3,804
-1 3,500 3,622 4,114 4,462

A. 0.2
B. 0.4
C. 0.6
D. any of the above (A,B, C) work equally well

Please explain

Solution Summary

The solution determines the value of alpha which is the best for forecasting passenger demand.

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