Monday, February 7, 2011

Reflexivity and economic forecasting?

Mark Thoma has this reason for avoiding making economic forecasts,

"There's a good reason why I try to avoid forecasts. In the past, whenever I've tried to predict the path the economy would take, I've found myself reading subsequent data releases in a way that supports the forecast. I think that once you make a forecast, it affects your objectivity, and I think that applies generally, not just to me."

I cannot but not agree with Mark. An undoubted element of reflexivity and self-fulfilling logic is inevitable with any forecasting exercise. It is natural that we will tend to read subsequent data in a way that supports previous forecasts.

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