Today my colleague Alison Bolen, Editor of sascom magazine, sent me this link to an interesting piece on NPR: “Can Economic Forecasting Predict The Future?” In a somewhat lighthearted take on the inability of our economists to predict the future — or even precisely report the past for that matt… er — we hear about the modeling efforts of “one of the leading economic forecasters in America.” These efforts revolve around 447 pages of math equations. Do I hear “**** DANGER WILL ROBINSON DANGER ****” ringing in my ears?
One sure warning sign that you aren't going to be able to forecast something worth a darn is when it takes 447 pages of equations to model it. Makridakis, Hogarth, and Gaba state it nicely in their recent International Journal of Forecasting article, “Decision making and planning under low levels of predictability”:
…a huge body of empirical evidence has led to the following conclusions.
• The future is never exactly like the past. This means that the extrapolation of past patterns or relationships cannot provide accurate predictions.
• Statistically sophisticated, or complex, models fit past data well but do not necessarily predict the future accurately.
• “Simple” models do not necessarily fit past data well but predict the future better than complex or sophisticated models.
Happy New Year.