Displaying Economic Value

3 The distinction between forecast quality and economic value in a cost-loss 4 formulation is well known. Also well-known is their complex relationship, even 5 with some instances of a reversal between the two, where higher quality is 6 associated with lower economic value, and vice versa. It is reasonable to expect 7 such counter-intuitive results when forecast quality and economic value both, 8 multi-faceted quantities are summarized by single scalar measures. Diagrams 9 are often used to display forecast quality in order to better represent the multi10 dimensional nature of forecast quality. Here, it is proposed that economic value 11 be displayed as a region on a plot of hit rate versus false alarm rate. Such a 12 display obviates any need to summarize economic value by a scalar measure. 13 The choice of the axes is motivated by the ROC diagram, and so, this manner 14 of displaying economic value is useful for deterministic as well as probabilistic 15 forecasts. 16 ∗Corresponding Author: [email protected] 1