The art of predicting

I purchased Nate Silver's The signal and the noise a few months ago, and it's been patiently waiting for me to crack its cover. Well, I finally did, and I am very much enjoying it, as I suspected I would (it was reviewed last year in the WSJ).

I will no doubt turn to this book at various times over the next few weeks, for input to blog posts. I'll share one excerpt now:

"In December 2007, economists in the Wall Street Journal forecasting panel predicted a 38 percent likelihood of a recession over the next year. This was remarkable because, the data would later reveal, the economy was already in a recession at the time. The economists in another panel, the Survey of Professional Forecasters, thought there was a 1 in 500 chance that the economy would crash as badly as it did." [emphasis in original]

Amazing, right? I especially love folks that would call themselves "professional forecasters."

Alas, even Mr. Silver misses the mark on predictions. He points out that "If you borrow $20 to wager on the Redskins to beat the Cowboys, that is a leveraged bet," and goes on to explain what the impact might be from leverage. He adds a footnote though to the bet itself: "And probably also a stupid bet if you've ever seen the Redskins play." The book was published in 2012. And, in 2012, the Redskins beat Dallas each time they played, 38-31 and 28-18. Oh, well...