Category Archives: Certainty

Forecasters in Proper Context

Whether it’s the local weatherman getting it wrong, or especially some economic shaman predicting the stock market’s next swing, forecasters have a record that doesn’t always outperform chance. This poor record has been known since at least Roman times, as Deirdre McCloskey notes on p. 265 of her 2000 book How to Be Human, Though an Economist:

The early Latin poet Ennius sneered at forecasters “who don’t know the path for themselves yet show the way for others.”

Or, as the philosopher Yogi Berra put it, “It’s tough to make predictions, especially about the future.”

Debunking Cognitive Biases

My former professor Bryan Caplan stars in a series of short videos about four cognitive biases that explain why voters systematically vote for bad policies. You can read about them in detail in his 2007 book Myth of the Rational Voter, or you can watch these videos:

Make-Work Bias

Pessimistic Bias

Anti-Market Bias

Anti-Foreign Bias

A Lesson in Humility

An important bit of wisdom from p. 25 of Rolf Dobelli’s The Art of Thinking Clearly:

There are about one million trained economists on the planet, and not one of them could accurately predict the timing of the 2008 financial crisis (with the exception of Nouriel Roubini and Nassim Taleb), let alone how the collapse would play out, from the real estate bubble bursting to credit swaps collapsing, right through to the full-blown economic crunch. Never has a group of experts failed so spectacularly. The story from the medical world is much the same: Up until 1900 it was discernibly wiser for patients to avoid doctor’s visits; too often the “treatment” only worsened the illness, due to poor hygiene and folk practices such as bloodletting.

The lesson to be learned is a familiar one: beware the rule of experts. No matter how clever you are, be a student of society. Don’t try to be its savior. That is well beyond any one person.

Certainty with a Capital C

One criticism I face fairly often is the assertion that I must be dishonest — I must be cherry-picking my evidence, or something — because the way I describe it, I’m always right while the people who disagree with me are always wrong. And not just wrong, they’re often knaves or fools. How likely is that?

But may I suggest, respectfully, that there’s another possibility? Maybe I actually am right, and maybe the other side actually does contain a remarkable number of knaves and fools.

Paul Krugman

Evidence of a closed mind. Always such a sad thing to see.

Words for the Wise

“But he was primarily an artist and therefore knew that in nature the intermediary colors predominate and an absolute white and an absolute black are rarely found.”

Hendrik WillemVan Loon, describing Desiderius ErasmusThe Praise of Folly.

Wise words for Republicans, Democrats, good-government types, anarchists, and all the other ideologies that suffer from too much Certainty.

Cell Phones, Cancer, and Certainty

cell phone-2

CNN reports: “Last summer, Dr. Ronald Herberman, then director of the University of Pittsburgh Cancer Institute, issued a warning to about 3,000 faculty and staff, listing steps to avoid harmful electromagnetic radiation from cell phones.”

“Electromagnetic radiation” is a fancy way of saying light waves.

Herberman has been on his cell phone crusade for a while now; I diagnosed him with a severe case of The Certainty last year.

Still, let’s assume he’s right that cell phones cause tumors. What actions should be taken? I present the following CDC data on leading causes of death as a way to guide our priorities:

Heart disease: 631,636
Cancer: 559,888
Stroke (cerebrovascular diseases): 137,119
Chronic lower respiratory diseases: 124,583
Accidents (unintentional injuries): 121,599
Diabetes: 72,449
Alzheimer’s disease: 72,432
Influenza and Pneumonia: 56,326
Nephritis, nephrotic syndrome, and nephrosis: 45,344
Septicemia: 34,234

Deaths from cancer attributable to cell phone use? Zero. There is an important lesson to be learned here.

Think of it like this: every dollar and every hour of researchers’ time spent investigating cancer risks from cell phones is money and time not spent curing heart disease. Or cancer itself. Or stroke. These “big three” combine to end more than a million lives each and every year.

Which is a better use of limited research resources? Herberman, by bringing funding and attention to a non-issue, is quite possibly costing lives that could otherwise be saved.

The Certainty has very high costs. In Herberman’s case,  measurable in lives.

Economic Hubris

The failure to predict the current economic crisis has lowered the public’s esteem of economists, as The Economist makes plain. The hit to our reputation is well-deserved.

This is not to sell economics short. The explanatory power of the economic way of thinking is incredible. Reading and understanding Bastiat’s “What Is Seen and What Is Not Seen” will change the way you see the world.

Knowing what opportunity costs are, and that incentives matter, allows you to almost literally see the unseen. It is almost magical. It is the stuff of poetry.

The fact that cities of millions like Paris and New York are fed every day without fail – overfed, even – while producing almost no food themselves, and without anyone directing the process, can be explained with two words: spontaneous order.

Pretty cool. But economists, just like other mortals, cannot predict the booms and busts of the business cycle. That some have claimed this miraculous power is a sign that economists have fallen prey to hubris. Our shaming in the public eye is a direct result of overstepping our boundaries.

Turn your tv to CNBC or some other business channel. Some mystic parading as an economist will try to predict which way the stock market will move tomorrow, or which stocks are will beat the market. Nobody knows that. Nobody could possibly know that.

If a stock really is a good buy, then people will buy it, driving up its price until it is no longer a good buy. Anyone claiming they can beat the market long-term probably also has some snake oil to sell you. The fact that a few people have had inordinate success, like Warren Buffett, is an artifact of the laws of probability.

Think about it. We can’t predict if the stock market will go up or down. How can we presume to think we can understand longer-term, macro-level movements like business cycles? There are more theories than there are economists.

Still, some people have said that they understand. And they shall give unto us of their wisdom. Some of these people hold political office, or advise people who do. They are putting their theories to the test; they are finding no effect. No wonder people are thinking so ill of economists lately.

Our hubris deserves all the public scorn it gets and more. My deeply held fear is that this disdain will trickle down to from where it is deserved to where it is not deserved.