Wednesday, August 14, 2013
Weather Forcasting And Economic Forcasting
John Kay's article reminds me of an old joke about economic forecasting. Economic forecasters exist in order to make weather forecasters look good. In both cases, however, probabilities are assigned to forecasts that have little relationship to what we ordinarily mean when we assign a probability to a random event like 100 doses of a fair coin. We can be pretty certain that the number of heads that occur will be close to 50. Weather forecasters assign to probability of rain using a very different method. They are much better at forecasting the weather than economists are at forecasting economic events because their assumptions about the weather are much better than the assumptions economists make about the economy.