Notes on Forecasting

4 Mar

Yesterday’s class on prediction was very interesting. I agree some form of prediction is inevitable and necessary after all, one of the expectation from any kind of an expert is some form of prediction. But the prediction game is played by mostly those who are least quipped or trained on it, most of those prediction are just few points ahead of chance (50%) and in most conditions that would just be fine, when the outcomes are binary in nature like games, but recently that was also proven wrong by black swan events like Jeremy Lin and the NY Nicks :). But in the business parlance such binary situations will be rarely found.

To give some real world examples, I came across this Freakonomics episode that Dr. Steven Levitt of ChicagoU and Robert Dubner of NPR put together (skip to section on USDA‘s crop prediction markets, Time Westergren’s Pandora online radio, and Robin Hanson of GeorgeMasonU and business of prediction markets)

I am in no way supporting not predicting the future, but predicting the right kind of future, that is why i made the comment on the insurance sector which spends a lot of time and energy figuring and factoring in possible events to make precise prediction of a group of things rather than any particular event. This concept is very beautifully described by Dr. Niall Fergusson of HarvardU in his book/video named ‘Ascent of Money‘, (skip to 12min for the topic under discussion, other chapters are equally interesting)

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