Outlook for 20XX

The Black Swan (Nassim Nicholas Taleb)
- Highlight Loc. 3291-97  | Added on Friday, November 04, 2011, 07:56 PM

Worse yet, many financial institutions produce booklets every year-end called “Outlook for 200X,” reading into the following year. Of course they do not check how their previous forecasts fared after they were formulated. The public might have been even more foolish in buying the arguments without requiring the following simple tests—easy though they are, very few of them have been done. One elementary empirical test is to compare these star economists to a hypothetical cabdriver (the equivalent of Mikhail from Chapter 1): you create a synthetic agent, someone who takes the most recent number as the best predictor of the next, while assuming that he does not know anything. Then all you have to do is compare the error rates of the hotshot economists and your synthetic agent. The problem is that when you are swayed by stories you forget about the necessity of such testing.