From an article in the Boston Globe:
He’s a sought-after source for journalists, a guest on talk shows, and has even acquired a nickname, Dr. Doom. With the effects of the Great Recession still being keenly felt, Roubini is everywhere.
But here’s another thing about him: For a prophet, he’s wrong an awful lot of the time. In October 2008, he predicted that hundreds of hedge funds were on the verge of failure and that the government would have to close the markets for a week or two in the coming days to cope with the shock. That didn’t happen. In January 2009, he predicted that oil prices would stay below $40 for all of 2009, arguing that car companies should rev up production of gas-guzzling SUVs. By the end of the year, oil was a hair under $80, Hummer was on its way out, and automakers were tripping over themselves to develop electric cars. In March 2009, he predicted the S&P 500 would fall below 600 that year. It closed at over 1,115, up 23.5 percent year over year, the biggest single year gain since 2003.
He’s not such an outlier:
To find the answer, Denrell and Fang took predictions from July 2002 to July 2005, and calculated which economists had the best record of correctly predicting “extreme” outcomes, defined for the study as either 20 percent higher or 20 percent lower than the average prediction. They compared those to figures on the economists’ overall accuracy. What they found was striking. Economists who had a better record at calling extreme events had a worse record in general. “The analyst with the largest number as well as the highest proportion of accurate and extreme forecasts,” they wrote, “had, by far, the worst forecasting record.”
But it’s not a bad gig:
2 comments
Comments feed for this article
January 24, 2011 at 4:01 pm
anon
snap!
January 24, 2011 at 4:19 pm
twicker
Love it.
In other words, if things happen normally most of the time (which they do), then virtually everyone is correct – which is not news.
Some few (e.g., Dr. Doom) will choose extreme events as being most likely – but, since that’s not the typical occurrence (hence why they’re “extreme”), they’ll generally be wrong – which is also not news (so no one hears about them much).
However, when an extreme event happens, people will say, “Hey! Wow! A prophet!” — not because they’re correct more than others (as you point out w/Denrell & Fang), but because they actually mention the extreme event.
I’m reminded of Gerald Celeste, who “predicted” the economic collapse (along w/Roubini) – and a further crash in 2010 (the one that didn’t happen). He’s still on Fox News & other outlets because he predicts extreme things.
I’m also reminded of the many, *many* over-caffeinated stock pickers (think Jim Cramer & Mad Money), who continually make larger-than-life predictions in larger-than-life ways – guaranteeing an emotional response from the viewers. Viewers then remember all the wonderful things they picked – without necessarily all the crap picks (though Jon Stewart helped everyone out in that department).