Thursday, October 16, 2008

Remembering the Hit and Forgetting the Misses

Megan McArdle is a brilliant economic commentator who has this to say about being correct regarding the current economic crisis:
"This is what comes from not reading economics commentators besides Paul Krugman. Though I don't know how Brian can quote me on Krugman almost a year ago, while somehow not noticing that I myself have been predicting that there would be economic trouble when the housing bubble popped."
Of course, this says nothing about how many times he predicted doom when it did not come. This is the common fallacy of predictions -remembering the hit and forgetting all the misses.

Another way to tell if someone is serious about their economic predictions is to have them put their money where their mouth is. If Krugman had placed bets following his economic predictions, he would have been bankrupt a long time ago. Being correct once does not make up for all the prior mistakes.

Update: As soon as I finish and post, I scroll down to see that Megan made the same point in a previous post:
If you keep predicting a recession, eventually you will be right. Every time there was the slightest downturn in the numbers, Paul Krugman predicted a recession. Eventually he was right. Do we give him credit for the one he got right, or the multiple ones he got wrong?
I would like to take credit for agreeing with Megan, but I just got lucky.

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