I found the linked podcast to be a good antidote for the endless barrage of dramatic predictions we are subjected to if we consult almost any news outlet in any medium these days.
See:
http://www.freakonomics.com/2011/09/14/new-freakonomics-radio-podcast-the-folly-of-prediction/ for some discussion in text, and links to the audio.
The research results described and analysis thereof are interesting. They go beyond the unsurprising results that most experts have dismal prediction records:
* Data shows that the financial experts who "correctly call the big ones" tend to have worse records than others at calling everything else; they also tend to have a poor track record at repeating their success.
* The data about cognitive style in expert prediction shows that dogmatic experts ("hedgehogs" from Isaiah Berlin's old metaphor) have worse records than pragmatic experts ("foxes").
* Steven Levitt provides an economic analysis for why there is so much predictive blather out there, namely that the incentives are all wrong: positive incentives for dramatic predictions without regard to whether they are right or wrong; disincentives for boring predictions; no penalties for wrong predictions.
* The podcast includes the pleasant-to-contemplate modification to the media presentation of expert predictions: always show the expert's "Prediction Average" underneath his face each time he makes a pronouncement, just the way sports broadcasts display a batter's batting average on the screen. (Only, would we all get accustomed to the idea that financial prediction is, like baseball, a "game of failure", and start thinking a .350 prediction average was actually pretty good?)
There are many other nice details in the podcast as well.
Hope some of you find this interesting.
Comments
Thanks for the reference. I immensely enjoyed it. You probably could have predicted that.
I fully concur with the observation that misaligned incentives embolden poor forecasting. Some reward/penalty function should be attached to each forecaster's record.
I suspect that my mistrust of the forecasting cohort prompts me to motivate each investor to use his own crystal ball. Under those conditions, the private investor understands the shortcomings of his predictions. He knows what he knows and he recognizes what he doesn't know. Presumably he acts accordingly, more carefully.
Once again, thank you for the Link and for your perceptive comments.
Best Wishes.