Forecasts are wrong, but is there some reason for them?

I see that, once again, we have people attacking forecasters because what happened was very different to the numbers that they pulled out of their computer (here and here).

Now if your belief is that this is the role of a forecaster, then this criticism is fair enough – after all, there is so much that is “unknown” and “unknowable” about the world it is pretty ridiculous to think you can state exactly what will happen, especially when the numbers themselves are often both wrong and meaningless.  But I don’t believe this is the role of someone in this sort of position, and it is definitely not how they should “sell themselves”.

I would be seen as a forecaster myself – but outside of making sure my data is up-to-date and that my empirical methods are robust, I spend all my time catching up on reading, talking to people, and trying to bring as much information together as I can.  I then distill it down and try to give it to clients in an easy to digest way – so that they can understand what is going on, and what the risks are for the future.

Its a service, we are paid to provide information, and to always be available to help inform people in government and business – so that they can make the decisions they think are appropriate.  If any of you have been to one of my presentations, you’ll remember how much I bang on about this – and how I spend the whole time focus on “why” and discussing “risks” and the reasons for them, rather than focusing on arbitrary numbers.

Now, I thought this would be obvious – as Peter says it is entrepreneurs that make the choices, and so they will value this type of service insofar as it helps give them information that allow them to make better informed choices.  Explanation, discussion, and helping to make the economic jargon transparent, is the sort of service that is provided by all these guys … so what’s with the angst?

But the view of the last year has been very wrong

Undeniably, and if it was possible to forecast the sharp rise in fuel prices, the impact of new banking regulations (with no relevant history), the global droughts, the earthquakes in Canterbury, the snow storms during lambing in the South Island, and government policy changes they would have been less wrong – but there is no change someone would have picked the actual numbers.

But just because so much is “unknowable” does not mean there isn’t value in discussing what we do know – and keeping informed.  If a client feels ill-informed, the guy is failing and needs to up their game – that is the issue that really needs to be looked at if we want to judge these people.

  • http://www.tvhe.co.nz rauparaha

    When I read the diatribes against forecasters they all seem to have the premise that people purchasing the forecasts for tens of thousands of dollars are wasting their money. I think any argument premised on someone being ‘too stupid to realise they’re wasting their money’ is probably missing something.

  • Miguel Sanchez

    “they all seem to have the premise that people purchasing the forecasts for tens of thousands of dollars are wasting their money”

    Quite the opposite in Rodney’s case – he’s an independent consultant who doesn’t have the resources that the banks, think tanks etc have, so he has to sell himself on the premise that his forecasts are better than anyone else’s.  These things are not ‘research’, they’re marketing material.

    • http://www.tvhe.co.nz rauparaha

      Yeah, I was talking more about the blog posts than Rodney’s piece. They don’t appear to take such a measured approach as he does.

  • Pangolin

    How many times does somebody have to do the “monkey with a dart board” trick before you clowns get shunted off to wherever astrologers and phrenologists have their conventions? 

    You use a lot of words and numbers to make wild-assed guesses. The moon is in Scorpio with Mercure retrograde also uses numbers and observations and the forecasts are equally vague and useless.  

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