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The largest problem with forecasting in economics is surely that others are also forecasting and attempting to manipulate the system. With weather forecasting t

The largest problem with forecasting in economics is surely that others are also forecasting and attempting to manipulate the system. With weather forecasting the result doesn't change just because it can be calculated.

matt4077 10y ago
It's not so much "trying to manipulate" (in the malicious sense) but that economic forecasts tend to be self-fulfilling prophecies. If you think a stock is undervalued you'll buy it , which will raise the price. If you think the economy will grow, you'll invest, which will cause the economy to grow. The result is the "efficient market hypothesis" which posits that all public information is already reflected in market prices to the best of our abilities (with a bit of swarm intelligence and darwinian selection making it unlikely that an individual can beat the market on ability). All that's usually applied to prices but other indicators like unemployment may simply correlate to such a degree that it extends to them as well.
- smallnamespace 10y ago
  It's usually applied to prices because the assumption is that the act of trading on perceived incorrect prices causes the price to converge to the market's expectations. Whereas for employment, you would need a mechanism that allows for 1) a public prediction of what the future unemployment path is and 2) a way for people to put money down if they disagree, such that it actually directly impacts unemployment.
- Normal_gaussian 10y ago
  I didn't mean manipulate in a malicious sense, but that doesn't really matter. You have a good point in that economic forecasts tend to be self-fulfilling, and that it is unlikely an individual can beat the market just with economic plays. Of course players don't just have traditional economic moves at their disposal, political power translates pretty well into economic manipulation - and that isn't just effective at a large scale.

matt4077 10y ago

It's not so much "trying to manipulate" (in the malicious sense) but that economic forecasts tend to be self-fulfilling prophecies. If you think a stock is undervalued you'll buy it , which will raise the price. If you think the economy will grow, you'll invest, which will cause the economy to grow. The result is the "efficient market hypothesis" which posits that all public information is already reflected in market prices to the best of our abilities (with a bit of swarm intelligence and darwinian selection making it unlikely that an individual can beat the market on ability). All that's usually applied to prices but other indicators like unemployment may simply correlate to such a degree that it extends to them as well.

smallnamespace 10y ago
It's usually applied to prices because the assumption is that the act of trading on perceived incorrect prices causes the price to converge to the market's expectations. Whereas for employment, you would need a mechanism that allows for 1) a public prediction of what the future unemployment path is and 2) a way for people to put money down if they disagree, such that it actually directly impacts unemployment.
Normal_gaussian 10y ago
I didn't mean manipulate in a malicious sense, but that doesn't really matter. You have a good point in that economic forecasts tend to be self-fulfilling, and that it is unlikely an individual can beat the market just with economic plays. Of course players don't just have traditional economic moves at their disposal, political power translates pretty well into economic manipulation - and that isn't just effective at a large scale.