Thursday, March 09, 2017

Economists are Terrible with Crystal Balls #DigitalDisruption

It seems that we have some scholarly articles backing this up.
"Suppose ... the unemployment rate was projected to remain near 5% over the next few years, accompanied by 2% inflation. Given the size of past errors, we should not be surprised to see the unemployment rate climb to 7% or fall to 3%. ... Similarly, it would not be at all surprising to see inflation as high as 3% or as low as 1%."
These are huge margins of error. Clearly, much economic forecasting is guesswork. Worse, the gap between prediction and reality may be widening. The study — done by David Reifschneider of the Federal Reserve and Peter Tulip of the Reserve Bank of Australia — found that forecasting mistakes had worsened since the 2008-09 financial crisis.
It seemed to me like it was just pure luck whenever they actually hit a number on the head. I wonder if we turned Watson or others loose on this how well they would do? They can certainly look at more variables at the same time and come to some sort of conclusion. I guess economics might be yet another field that will become "digitally disrupted."

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