So as I see it, we should first of all be evaluating models, not individuals; obviously we need people to interpret those entrails models, but we’re looking for the right economic framework, not the dismal Nostradamus. Second, we should be evaluating models and the individuals who claim to have these models based on broad performance, not single events; if your approach (say) predicted the housing crash but then also predicted runaway inflation from Fed expansion — I assume everyone knows who we’re talking about — it’s not a good approach. Finally, I think we’re looking for conditional predictions — what happens given events that are themselves not part of the model — not absolute predictions. It was, for example, very hard in the fall of 2011 to know how the ECB would respond to the escalating financial crisis in Europe; failing to predict that Mario Draghi would find a way to funnel vast sums to debtor nations through discounting would have lost you a lot of money, but wasn’t really a failure of the economic model.
Posted on: Tue, 18 Jun 2013 20:51:27 +0000
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