CBO Memorandum: Estimating the Costs of One-Sided Bets: How CBO Analyzes Proposals with Asymmetric Uncertainties
Abstract
One of the primary responsibilities of the Congressional Budget Office (CBO) is to analyze the budgetary effects of legislative proposals. CBO issues formal estimates for every bill reported out of committee as well as every bill passed by the Congress and cleared for the President's signature that affects direct spending or revenues. (Direct spending is spending not subject to annual appropriation.) Earlier in the legislative process, CBO analysts may provide Congressional staff with informal estimates as bills are developed and refined. The agency's estimates play a significant role in the budget procedures of the House of Representatives and the Senate; accordingly, CBO strives to base each estimate on care fill analysis and the best available information. In keeping with that goal, CBO has developed a method of analysis known as probabilistic estimating for use in certain rare circumstances in which traditional methods would yield misleading results. This memorandum reviews the traditional approach and its limitations for analyzing bills that involve asymmetric budgetary uncertainties, outlines the basic approach used in probabilistic estimating, and provides brief case studies that illustrate how CBO has used that approach in analyzing legislative proposals.
Document Details
- Document Type
- Technical Report
- Publication Date
- Oct 01, 1999
- Accession Number
- ADA399608
Entities
Organizations
- Congressional Budget Office