Answer: pretty bad! From a 1999 Journal of Business paper by Chris Avery and Judy Chevalier … Read More »
In the heat of a Presidential campaign, it can be hard to pay attention to other news. But a small-seeming story out of Italy yesterday has, to my mind, the potential to shape the future as much as a Presidential election.
As reported by ABC, the BBC, the Wall Street Journal, the New York Times, and elsewhere, an Italian court has convicted seven earthquake experts of failing to appropriately sound the alarm bell for an earthquake that wound up killing more than 300 people in L’Aquila in 2009. The experts received long prison sentences and fines of more than $10 million.(Addenum: Roger Pielke Jr. discusses the “mischaracterizations” of the verdict.)
There is of course the chance that the verdict will be thrown out upon appeal, discredited as an emotional response to a horrible tragedy. Read More »
The episode was inspired by a recent poll I saw on Yahoo! Finance (at left).
Does anyone believe for a minute that this many people would actually leave the U.S. if taxes (whatever that means, exactly) were to rise to 40 percent or even 70 percent? Read More »
Nate Silver first gained prominence for his rigorous analysis of baseball statistics. He became even more prominent for his rigorous analysis of elections, primarily via his FiveThirtyEight blog. (He has also turned up on this blog a few times.)
Now Silver has written his first book, The Signal and the Noise: Why So Many Predictions Fail — But Some Don’t. I have only read chunks so far but can already recommend it. (I would like to think his research included listening to our radio hour “The Folly of Prediction,” but I have no idea.)
A section of Signal about weather prediction was recently excerpted in the Times Magazine. Relatedly, his chapter called ”A Climate of Healthy Skepticism” has already been attacked by the climate scientist Michael Mann. Given the stakes, emotions, and general unpredictability that surround climate change, I am guessing Silver will collect a few more such darts. (Yeah, we’ve been there.) Read More »
According to a new study, people do. Even when they know that the advice is useless.
Researchers Nattavudh Powdthavee and Yohanes E. Riyanto investigated why people pay for advice about the future, particularly since the future is generally unpredictable (see our “Folly of Prediction” podcast on this topic). Their starting point:
Read More »
Why do humans pay for advice about the future when most future events are predominantly random? What explains, e.g., the significant money spent in the finance industry on people who appear to be commenting about random walks, payments for services by witchdoctors, or some other false-expert setting?
I owe my favorite local bookstore, the Harvard Bookstore, for making another day for me. Wandering the tall, packed shelves on a warm and breezy evening, I ran across Schaum’s Outline of Principles of Economics. One subtitle on the cover: “964 fully solved problems.” The problems include, for example (from page 50): “True of false: As used in economics, the word demand is synonymous with need,” or “True or false: A surplus exists when the market price is above the equilibrium price.”
I didn’t long much for either answer.
Instead, as the U.S. mortgage market has, as James Kunstler predicted on October 10, 2005, imploded “like a death star” and dragged “every tradable instrument known to man into the quantum vacuum of finance that it create[d],” as euros flee from Greece, and as bank loans dry up in Spain, I wished that the 964 fully solved problems included one or two of the real problems.
The same folks who stunned the world in 1972 with a prediction that economic growth would soon cease because of resource constraints are back again, predicting resource constraints will lead to global depression in 2030. Growth did not end by 1990, and it will not end in 2030. As before, prices will change to make economizing on increasingly scarce resources good business policy; and, as before, technology will change to lead businesses and consumers to substitute away from relatively scarce resources.
The interesting question is why this same nonsense continues to get so much attention. Is it that people forget the absurdities of the past arguments? Or do we have a substantial, never-satisfied demand for schadenfreude? Regardless, this stuff is just as bad economics as it was when The Limits of Growth first appeared.
Here’s something you don’t often hear an economist admit: We have very little idea where the economy will be next year.
Truth be told, our best guesses just aren’t very good. Government forecasts regularly go awry. Private-sector economists and cutting-edge macroeconomic models do even worse.
Our objective isn’t to beat up economists. Rather, we want to make the point that when we recognize our shortcomings, we’re forced to confront the enormous uncertainty that lies ahead. And appropriate humility about the economy changes how we think about policy. Read More »