Friday, December 12, 2008

8 Predictions

Not many people ask my opinions on the current recession and financial crisis. Things change every day as new data arrive, so people's opinions often change as the facts change.

Predicting and forecasting is just a waste. The people who have been right in the past year may have just been lucky. The people who have been wrong this year might get lucky next year. The people who were wrong this year might have made sound predictions, there were just too many unknown unknowns. Our hindsight bias discounts them as "obviously wrong," and so the few people who went against the grain are "obviously right."

Worse, many people making predictions in the news have vested interests. Financial economists want to shore up confidence in the market to boost investment in their firms, academic economists tend to be much more pessimistic. The pessimistic predictions have been the most accurate in the past year, so maybe there's a pessimism bias in academia right now.

Fortune Magazine has compiled what they call "8 really, really scary predictions"from eight different players. From Nouriel Roubini to a guy who's been managing funds on Wall Street for over 50 years. The contrasts are interesting; some predictions are not that scary.

Sticking with the 8s, The NY Times' Economix Blog has 8 different economists' answers to the question: "How would you design the ideal $500 billion stimulus package?"

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