/scenario-analyzer

Scenario Playbooks

This reference provides templates and best practices for constructing 18-month scenarios. Use it during scenario analysis to produce consistent, high-quality scenarios.

Core Principles of Scenario Construction

1. MECE Principle (Mutually Exclusive, Collectively Exhaustive)

Scenarios should satisfy:

• Mutually exclusive: scenarios do not overlap
• Collectively exhaustive: cover all major possibilities

2. Probability Allocation Guidelines

When an asymmetric allocation is appropriate:

• Bull > Bear: environment with many bullish drivers
• Bear > Bull: environment with many risk factors
• Base > 60%: low-uncertainty situation
• Base < 50%: extremely high-uncertainty situation (even the Base Case is uncertain)

3. Timeline Segmentation

3-phase structure:

• 0-6 months: short-term reaction, initial moves
• 6-12 months: medium-term development, trend formation
• 12-18 months: long-term outcome, new equilibrium

Scenario Templates

Base Case Template

### Base Case (XX% probability)

**Summary**:
[Summarize the scenario in 1-2 sentences. Describe the most probable development.]

**Assumptions**:
- [Assumption 1]: [specific condition]
- [Assumption 2]: [specific condition]
- [Assumption 3]: [specific condition]

**Timeline**:

**0-6 months:**
- [Key development 1]
- [Key development 2]
- [Expected market reaction]

**6-12 months:**
- [Medium-term development 1]
- [Medium-term development 2]
- [Trend direction]

**12-18 months:**
- [Long-term outcome 1]
- [New equilibrium state]
- [Structural change (if any)]

**Impact on economic indicators**:
| Indicator | Current | 6-month forecast | 12-month forecast | 18-month forecast |
|-----------|---------|------------------|-------------------|-------------------|
| GDP growth | X% | X% | X% | X% |
| Inflation | X% | X% | X% | X% |
| Policy rate | X% | X% | X% | X% |
| Unemployment | X% | X% | X% | X% |

**Key catalysts**:
- [Factor that supports this scenario 1]
- [Factor that supports this scenario 2]

**Invalidation signals**:
- [Sign this scenario is breaking down 1]
- [Sign this scenario is breaking down 2]

Bull Case Template

### Bull Case (XX% probability)

**Summary**:
[Summarize the optimistic scenario in 1-2 sentences. What kind of upside occurs.]

**Assumptions**:
- [Optimistic assumption 1]: [specific condition]
- [Optimistic assumption 2]: [specific condition]
- [Optimistic assumption 3]: [specific condition]

**Timeline**:

**0-6 months:**
- [Positive development 1]
- [Positive development 2]
- [Expected favorable market reaction]

**6-12 months:**
- [Continuation of the upside trend]
- [Additional positive factors]
- [Improving market sentiment]

**12-18 months:**
- [Outcome of the optimistic scenario]
- [State achieved]
- [Sustainability assessment]

**Impact on economic indicators**:
[Assume figures better than the Base Case]

**Upside catalysts**:
- [Factor that realizes this scenario 1]
- [Factor that realizes this scenario 2]

**Conditions that raise this scenario's probability**:
- [Condition 1]
- [Condition 2]

Bear Case Template

### Bear Case (XX% probability)

**Summary**:
[Summarize the risk scenario in 1-2 sentences. What kind of downside occurs.]

**Assumptions**:
- [Risk assumption 1]: [specific condition]
- [Risk assumption 2]: [specific condition]
- [Risk assumption 3]: [specific condition]

**Timeline**:

**0-6 months:**
- [Negative development 1]
- [Negative development 2]
- [Expected adverse market reaction]

**6-12 months:**
- [Continuation/deepening of the downside trend]
- [Secondary problems surfacing]
- [Deteriorating market sentiment]

**12-18 months:**
- [Outcome of the risk scenario]
- [Worst-case state]
- [Recovery path (if any)]

**Impact on economic indicators**:
[Assume figures worse than the Base Case]

**Downside risk factors**:
- [Factor that triggers this scenario 1]
- [Factor that triggers this scenario 2]

**Conditions that raise this scenario's probability**:
- [Condition 1]
- [Condition 2]

**Risk-mitigating factors**:
- [Factor that may mitigate this scenario 1]
- [Factor that may mitigate this scenario 2]

Scenario Playbooks by Event Type

1. Monetary Policy Event (Rate Hike)

Base Case (55%):

• Rate hike implemented as expected
• Market has largely priced it in
• Mild equity dip, slight rise in bond yields

Bull Case (20%):

• Hike smaller than expected
• Dovish forward guidance
• Equity-market rally

Bear Case (25%):

• Hike larger than expected
• Hawkish forward guidance
• Sharp equity selloff, widening credit spreads

2. Geopolitical Event (Conflict Outbreak)

Base Case (50%):

• Limited escalation of the conflict
• Short-term rise in commodity prices
• Situation stabilizes within a few months

Bull Case (15%):

• Early ceasefire / peace agreement
• Commodity prices normalize
• Market recovers early

Bear Case (35%):

• Prolonged / expanded conflict
• Serious disruption of commodity supply
• Accelerating global inflation, recession risk

3. Technology Shift (AI Regulation)

Base Case (50%):

• Gradual introduction of regulation
• Industry self-regulation predominates
• Limited impact on innovation

Bull Case (25%):

• Regulation formulated in a way favorable to the industry
• Regulatory clarity actually accelerates investment
• Entry barriers formed that favor incumbents

Bear Case (25%):

• Strict regulation introduced
• Significant restrictions on AI development
• Decline in US companies' competitiveness

4. Corporate Event (Large M&A)

Base Case (60%):

• Regulatory approval obtained
• Closing on schedule
• Gradual realization of integration synergies

Bull Case (15%):

• Synergies realized beyond expectations
• Integration goes smoothly
• Additional M&A strategy succeeds

Bear Case (25%):

• Blocked by regulators or conditional approval
• Delay / failure of integration
• Synergies not achieved

Scenario Quality Checklist

Internal Consistency

• Are the assumptions of each scenario logically consistent?
• Is the causality of the timeline development clear?
• Are the economic-indicator forecasts mutually consistent?

External Validity

• Is it consistent with past analogous events?
• Does it appropriately reflect the current market environment?
• Does it not diverge greatly from expert views?

Practicality

• Is there enough specificity to be useful for investment decisions?
• Are monitorable catalysts identified?
• Are invalidation signals clear?

Comprehensiveness

• Are the major risk scenarios included?
• Is the upside possibility appropriately considered?
• Is there mention of tail risk?

Common Mistakes and How to Avoid Them

1. Status-quo bias

Problem: Assigning excessive probability to the Base Case (70%+) Avoid: Recognize that historically the probability of "nothing changes" is low

2. Recency bias

Problem: Overestimating the impact of the most recent event Avoid: Maintain a long-term view, refer to past patterns

3. Confirmation bias

Problem: Adopting only interpretations aligned with the headline Avoid: Deliberately seek out opposing views

4. Excessive precision

Problem: Forecasting figures 18 months out to decimal places Avoid: Acknowledge uncertainty, express as a range

5. Scenario overlap

Problem: Base/Bull/Bear partially overlap Avoid: Clarify the boundary conditions of each scenario

Probability Update Guidelines

Probability adjustment when new information arrives:

After adjustment, always re-normalize to 100% total

Output Quality Standards

Characteristics of a high-quality scenario:

1. Specificity: not abstract; includes figures, dates, names
2. Logic: clear causality
3. Verifiability: correctness can be judged later
4. Practicality: includes information directly tied to investment decisions
5. Humility: appropriately expresses uncertainty