Posts filed under “Really, really bad calls”
In yesterday’s afternoon reads, I mentioned a Boston Globe story “That guy who called the big one? Don’t listen to him.”
While it ostensibly looks at the track record of Nouriel Roubini, it isn’t really about him –its really about outliers and mean reversion in forecasting.
“How can someone with the insight to be so right about a major event be so wrong about so many other ones? According to a recent study, it’s simple: The people who successfully predict extreme events, and are duly garlanded with accolades, big book sales, and lucrative speaking engagements, don’t do so because their judgment is so sharp. They do it because it’s so bad . . .
[Oxford economist Jerker Denrell and Christina Fang of New York University] are the latest in a long line of researchers dismantling the notion that predictions are really worth anything. The most notable work in the field is “Expert Political Judgment” by Philip Tetlock of the University of Pennsylvania. Tetlock analyzed more than 80,000 political predictions ventured by supposed experts over two decades to see how well they fared as a group.
The answer: badly. The experts did about as well as chance. And the more in-demand the expert, the bolder, and thus the less accurate, the predictions. Research by a handful of others, Denrell included, suggests the same goes for economic forecasters. An accurate prediction — of an extreme event or even a series of nonextreme ones — can beget overconfidence, which can lead to making bolder and bolder bets, and thus, more and more errors . . .
There’s no great, complex explanation for why people who get one big thing right get most everything else wrong, argues Denrell. It’s simple: Those who correctly predict extreme events tend to have a greater tendency to make extreme predictions; and those who make extreme predictions tend to spend most of the time being wrong — on account of most of their predictions being, well, pretty extreme. There are few occurrences so out of the ordinary that someone, somewhere won’t have seen them coming, even if that person has seldom been right about anything else.”
Fascinating stuff, worth reading in full . . .
The Folly of Forecasting (June 2005)
The Illusory World of Economic Forecasting (September 19th, 2006)
Guru Time of Year (January 2nd, 2011)
That guy who called the big one? Don’t listen to him.
Boston Globe, January 9, 2011
Category: Really, really bad calls
This is the original map with the rifle crosshairs from Sarah Palin’s site is below — don’t look for it on her site, as it was pulled down today. The Examiner criticized it back in March 2010: Sarah Palin posts political hit list on Facebook: taking a stand or suggesting violence? March 25th, 2010 3:20…Read More
More shocking news about the inept rating agencies: “The agencies rated billions of dollars worth of these bonds, mostly in the last two years. With shocking rapidity, even some of those triple A-rated bonds have defaulted. Of the more than $85 billion of re-remics issued since 2009, an estimated $30 billion may be under review…Read More
“The only thing we learn from history is that we learn nothing from history.” -Friedrich Hegel quotes (German Philosopher (1770-1831) > Representative Darrell Issa of California recently sent letters to more than 150 companies, trade groups and research organizations asking them to identify federal regulations that they wanted to see repealed or rewritten. This is…Read More
I love this quote: “Next time you hear a banker denounce mark-to-market rules, ask if he runs his business that way. Will he offer you a mortgage loan based on what you think your home should be worth, which you can repay only if you make a lot more money than anyone will pay you?…Read More
On the last day of the year, I like to think back about the truths I learned this year. Some were revealed accidentally, others were the work of challenging data analysis. We happened upon some Truths during deep contemplation, and occasionally stumbled across them accidentally. And of course, there was Wikileaks. Regardless of your method,…Read More
Matt Taibbi’s new book, Griftopia: Bubble Machines, Vampire Squids, and the Long Con That Is Breaking America, was reviewed this weekend in the Sunday New York Times Book Review. The review was rather positive, with some quibbles towards the end. If you find Taibbi’s writing entertaining — and I do — then you should read…Read More
The WSJ reports today that nearly 100 U.S. banks that got TARP funds from the federal government in Q4 2008 are in danger of going bankrupt. So far, 7 bailout recipients have failed, resulting in more than $2.7 billion in lost TARP funds. The balance of the remaining potential failures relatively small banks — the…Read More
I wonder if you could go to a Bank CEO’s home, break into his house, and throw out all of his personal possessions — family heirlooms, photos, awards — then claim a paperwork error. That is the excuse they have been using: “In an era when millions of homes have received foreclosure notices nationwide, lawsuits…Read More