From: nelson_p@apollo.hp.com (Peter Nelson)
Subject: Re: The Enduring Rand (was: Re: Theory?)
Date: Mon, 23 Nov 1992 16:08:32 GMT
Organization: Hewlett-Packard Corporation, Chelmsford, MA

In article <1992Nov21.105715.27383@genie.slhs.udel.edu> starr@genie.slhs.udel.edu (Tim Starr) writes:
>In article <By0qsM.6D2@apollo.hp.com> nelson_p@apollo.hp.com (Peter Nelson) writes:
>}  OK, show us some "qualitative" predictions for the near term that we
>}  can use to verify your claim.
>
>I've already done that.  Double-digit price inflation within 5 years, tops.
>Depression.  Does this mean you'll shut the hell up for the next 5 years?  No,
>because you're only interested in being argumentative, not in learning anything
>from your opponents.  There's a whole book that's been written on predicting
>the future of the economy during the '90s: "The Great Reckoning".

  Oh, come on, these books have been coming out every year or so for
  decades!   I've been an active investor for 20 years and I've seen
  *dozens* of "Depression 1987", "Calamity 1985", "Melancholy 1990", 
  or whatever.  Now since, depressions, etc, DO happen, odds are that
  sooner or later one of these might be right, but one lucky guess
  is meaningless.  Every day 10's of thousands of securities anaylists
  and investors make predictions about what the markets will do and
  *thousands* of them turn out to be right.  So what?  I want to see
  statistical significance.


>}  Any Keynesianism predicted the exconomic expansion in Europe in 
>}  the postwar period.   So what?  The fact that one person made one
>}  accurate prediction is meaningless.   Every single day millions
>}  of investors make preditions about the future course of securities
>}  markets and the next day many of them turn out to be right.  
>}  Including ones made by tossing darts at a dart board -- the
>}  infamous Wall Street Journal "Dart Board Index" which frequently
>}  beats teams of major securities analysts.
>                                          
>Now prediction is meaningless?  How did it go from being so significant in
>your scheme of things to this? 

  Science uses the statistical concept of "significance" to answer this
  question.   A prediction has to be statistically significant, which
  means it has to be correct to some level (specified in the experiment)
  that cannot be accounted for by random chance.    Mr. Starr ought to 
  familiarize himself with scientific methodology.


> Just precisely how meaningless is it? 

  This is an easy question to answer if the correct predictions
  and the total number of predictions are specified, along with the
  signicance level.

  
> [ various examples of correct economic predictions ]

> If you are consistent, you'll now tell me that this prediction was meaningless,
> without telling me how to get a meaning-ometer with which to measure this. 

  Say I flip coins and with every coin flip I generate a random number.
  If the number is odd, I declare "heads".   A lot of those predictions
  will be right, but that doesn't mean I have a science of coin flipping.

  Religious people can also cite plenty of instances of praying for 
  a thing and then having it actually occur.  Same problem.


---peter