What's Wrong With Punishing Bad Predictions?

(Photo: Alessandro Giangiulio)

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. 

But let’s consider what the verdict represents as of today: scientists and government officials are being held personally accountable for the failure to adequately predict the scale of a natural disaster.

If you ever heard our “Folly of Prediction” podcast, you might think we would embrace this verdict. Our main point, after all, was that the world is awash in prediction, much of it terrible, in large part because there are strong incentives to make bold predictions and weak penalties for bold predictions don’t come true.

For example: I could write here today that the Dow will reach 35,000 by the end of 2013. In the very unlikely event that this prediction comes true, I would be lauded and rewarded to no end. And in the likely event my prediction doesn’t come true, it will be pretty much forgotten.

But the Italian earthquake story is in fact the opposite of this common scenario. By not predicting an anomalous event which then did occur, the scientists are being penalized for not sounding an alarm bell loudly enough.

If a child of mine had been killed in the Italian earthquake, I might well feel entitled to vengeance. But, in a world where experts in all realms are constantly sounding alarm bells that turn out to be meaningless, how does this verdict potentially shape the future? I can see at least two effects:

1. Scientists and others might become less willing to predict the future — which, given our skill at prediction, might not be a terrible thing but which, given the fact that future-gazing is often an excuse for useful research, might be a terrible thing.
2. A message has been sent that it is better to predict a calamity than to fail to predict a calamity. If you fail to predict a calamity, as anomalous as it may be, you risk being sent to jail and fined. So the incentive to predict a calamity has just been significantly increased.

Does this mean I can have my financial planner sent to jail every time the market tanks? Can I have my kid’s guidance counselor sent to jail if anthropology doesn’t turn out to be the hot employment field of the future?

Am I wrong in thinking this is a big, big story?

FWIW, we did another podcast about how hard it is to predict earthquakes.

(HT: inter alia, Steven Merahn and Marginal Revolution)