The Boston Globe: The Folly of Forecasting

by | Jan 11, 2011 | Uncategorized | 0 comments

No doubt you are aware of my views on the lack of value that economic forecasts carry.  But don’t take my word for it.  Here is a recent article by Joe Keohane of The Boston Globe.

… why do we put so much stock in expert forecasters? In a saner world than ours, those who listen to forecasters would take into account all their incorrect predictions before making a judgment. But real life doesn’t work that way. The reason is known in lab parlance as “base rate neglect.” And what it means, essentially, is that when we try to predict what’s next, or determine whether to believe a prediction, we often rely too heavily on information close at hand (a recent correct prediction, a new piece of data, a hunch) and ignore the “base rate” (the overall percentage of blown calls and failures).

We want to believe that someone, somewhere can foresee surprising and disruptive change. It means that there is a method to the madness of not just business, but human existence, and that it’s perceptible if you look at it from the right angle.

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