John Cameron's personal blog

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Forecasters: rabbits, foxes or hedgehogs

It’s that time of the year when forecasters are thick on the ground.  It’s like they’re “breeding like rabbits”. But, however they breed, are they more like foxes or hedgehogs?

Hedgehogs are driven by one big defining idea. Their style is well suited to 10 second grabs.

Foxes, are into the detail. They look at lots of small facts However, they don’t come across well in the media, and their style can quickly bore the pants off just about anybody.

Little wonder that most of the forecasters who have been bombarding us lately are hedgehogs.

Tetlock and Gardner, in their recent book, “Superforecasting: the art and science of prediction”, have tested the accuracy of forecasters.

Their conclusions: Nobody is very good at forecasting, but foxes are much better than hedgehogs. 

Over the last couple of months, there has been a deluge of forecasters making dire predictions about the future of the sharemarket. The gloomy forecasts have happened despite there being no new data, and generally OK economic conditions

A deeper contributing factor is that nobody knows for certain what is the “real” value of shares (or real estate). It all depends on forecasts. As the great economist John Maynard Keynes said, such decisions (about values) are based very much on “second guessing” what other people think the value should be. He likened it to “beauty pageants” then popular in British newspapers, in which people had to guess who other readers thought was the most attractive entrant. The winners were those who correctly guessed what the majority of readers would guess. 

Recently, experimental economists have replicated the “beauty pageant” in games – not using actual beauty pageants, but using the same logic of guessing what everybody should guess with a given set of facts. There is a definite answer. But nobody gets it.​

As Yogi Berra said: “Forecasting is very hard, especially when it’s about the future."



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