41–50 of 71 posts
Isn't inability to accurately predict some economic metrics consequence of efficient market hypothesis? All available and some unavailable information is already reflected in market. So, sum of reasonable guesses of next year GDP more or less is today's market index. Anything over that is some baseless speculation with no skin in the game.
Much of the discussion here including the linked article fail to make an important distinction between domains. Prediction can be done quite effectively on thin tailed processes. A lot of the counter examples listed in the comments here are physical systems which are thin tailed. I see aircraft autopilot, collision detection, ozone depletion. These are all well understood physical phenomenon in which large deviations…
It's not that we can't forecast heavy tailed processes -- it's just that the forecasts are used wrong. The appropriate layman's forecast of a recession within the next year is something like a constant 11 %. I'm willing to bet this outperforms most "predictions" out there. But! When people see that number they go, "right, so it's vastly more likely it does not happen" and then completely ignore the possibility. The p…
I think we agree here but the unspoken measure is the amount of uncertainty in each forecast. This is still a very inaccurate prediction compared to the collision detection system which nearly always gets it right.
You hit the nail on the head in your last paragraph. Doing something useful doesn’t require an accurate prediction. I agree entirely that assigning an appropriate cost function and responding accordingly guides you to useful actions.
Edit: Just discovered your blog through your profile. The topics look super relevant to my interests. Thank you for sharing your thoughts online, I’m looking forward to reading them!
Earlier quoted context omitted.
There's a wide variety of strategies available. The type you mention of picking up small inefficiencies certainly exists but there are plenty of other strategies that involve having some sort of informational edge. Some hedge fund managers just read a lot of earnings releases, but there are also more sophisticated approaches: a famous example would be the fund that paid for satellite imagery of the parking lots of ce…
Both of those examples have been exploited to death and no longer are profitable
A forecasting system in aircraft autopilot that can accurately forecast when the plane hits the mountain is always wrong. Forecasting when the forecast depends on the actions of agents that can be informed by the forecast changes the game. If the Fed model forecasts recession and the Fed takes action to prevent it from happening, it changes everything. Only a forecasting model that is not observed/believed by policy…
I think this article has two shortcomings that make its sweeping conclusions shaky. First, it identifies forecasting with point forecasting. There are other ways to put forecasting questions, e.g. lower and upper level with a certain probability. Also it mentions Tetlock, but only his negative findings, not his positive ones that lead to Good Judgement Project, which suggest the contrary of the conclusion of this art…
Tetlock paints a different picture of his positive findings than you do. Specifically, Tetlock's project opens with key issues of scope about what to even try to forecast. Based on his previous work in expert prediction, he concluded that geopolitics is sufficiently chaotic to be impossible to predict 10 years out. So while he did a lot of work on forecasting, it is generally focused on the next year or to. Which mea…
In other words, you cannot use information from today to improve predictions beyond long-term statistical generalities.
But that doesn't mean the prediction is useless, only that it has great uncertainty.
Earlier quoted context omitted.
I don’t have a background in this but I was under the impression that much of algorithmic trading is that there are trillions of pennies lying around and if you have an algorithm that picks up those pennies faster than anyone else, you make a lot of money. So it’s capitalizing on tiny market inefficiencies rather than directional predictions.
There's a wide variety of strategies available. The type you mention of picking up small inefficiencies certainly exists but there are plenty of other strategies that involve having some sort of informational edge. Some hedge fund managers just read a lot of earnings releases, but there are also more sophisticated approaches: a famous example would be the fund that paid for satellite imagery of the parking lots of ce…
There are many such strategies. It's not all HFT either. For example, a strategy that short BTC and goes long ndx/qqq at the open and closes both positions at the close (four trades total), allocating half of capital to each pair, posted a double-digit gain for 2023 despite btc rising. https://greyenlightenment.com/2023/12/31/2023-bitcoin-method...
there are many other things like this. gotta keep your eyes peeled but they exist.
Earlier quoted context omitted.
It's not that we can't forecast heavy tailed processes -- it's just that the forecasts are used wrong. The appropriate layman's forecast of a recession within the next year is something like a constant 11 %. I'm willing to bet this outperforms most "predictions" out there. But! When people see that number they go, "right, so it's vastly more likely it does not happen" and then completely ignore the possibility. The p…
> The appropriate layman's forecast of a recession within the next year is something like a constant 11 %. I'm willing to bet this outperforms most "predictions" out there. I think we agree here but the unspoken measure is the amount of uncertainty in each forecast. This is still a very inaccurate prediction compared to the collision detection system which nearly always gets it right. You hit the nail on the head in…
Alas, these are not widely understood words.
The author would also conclude: * Collision avoidance systems are terrible at forecasting collisions because they almost never result in a collision. (The point of the system is to help you avoid an upcoming collision.) * The prediction that Y2K would happen was a bad one since it didn't happen. (We spent billions of dollars to make sure it didn't.) * The 1978 prediction that the ozone layer would be depleted by 2010…
Earlier quoted context omitted.
Tetlock paints a different picture of his positive findings than you do. Specifically, Tetlock's project opens with key issues of scope about what to even try to forecast. Based on his previous work in expert prediction, he concluded that geopolitics is sufficiently chaotic to be impossible to predict 10 years out. So while he did a lot of work on forecasting, it is generally focused on the next year or to. Which mea…
I agree with the assessment that there are not many systems we can predict 10 years out with great confidence, specifically geopolitics. But I do not think I painted much of a picture of Tetlock's results. I read the article as concluding: let's stop predicting, it does not work. Let's start building. (After stating we cannot predict this, and we cannot predict that.) And I think Tetlock"s result contradict that, as…