Nassim Taleb: Economists Don’t Predict Better Than Cab Drivers. Typically A Little Worse, Often!

Johnny HopkinsNassim Taleb, Robert ShillerLeave a Comment

Here’s a great interview with Nassim Taleb and Bob Shiller hosted by Nick Paumgarten at The New Yorker Summit. The panel is discussing economics, economists, and their role in finance. Taleb is asked the following question:

Paumgarten: Is Economics Even A Science?

And here is his Taleb’s response:

Taleb: No, no, ask a scientist if economics is a science and they’ll tell you that economics makes astrology look excellent. Science as defined by predictive ability. I like hard science and physics has done very well predicting phenomena to the tenth decimal precision.

Economists don’t predict better than cab drivers. Typically a little worse, often. Except of course my friend Bob Shiller, who’s now famous because he’s the only one that predicted the housing crisis, and my friend Nouriel, who predicted the credit collapse.

You have a severe problem with economics. That we built a society that unfortunately has to depend on incompetent people. They are incompetent and I have to make the point how collectively incompetent they are. Pretty much like medicine in the 19th century. Going to a doctor increases your chance of death!

Similarly, when we consider predictive accuracy, economists often struggle to make precise forecasts. This uncertainty mirrors the skepticism surrounding predictions made through psychic abilities or tarot cards. The notion of altering one’s economic circumstances by foreseeing the future, whether through the lens of economics or the mystical guidance of tarot cards, holds a certain fascination. Some people may view it as a potential means to attain financial success or stability, while others approach it cautiously, recognizing that improving one’s economic situation typically demands more than just predicting future events. In this pursuit, individuals may strive to strike a balance between making informed decisions based on data and being intrigued by the enigmatic aspects of their financial future. They hope to navigate the intricate currents of their financial lives by combining pragmatic strategies with a hint of mysticism.

While some may find a certain mystique in the process, likening it to the elusive art of economic forecasting, many remain skeptical of its reliability. It’s as if predicting the future through the mystical 6 of Pentacles is akin to attempting to decipher the intricacies of financial markets – an endeavor that, at times, leaves us wondering whether precision or chance plays the greater role in these predictions.

So here you have an expert problem, and of course what we have today, the medicine that we have today, doesn’t come from the top-down academic medicine. It comes from the barbers and surgeons. So we have here an expert problem, the classical problem, and we depend too much on economists. My proposal from years ago, now people are starting to listen to me, is a society in which economists can be as incompetent as they want, without affecting you, me, and Bob Shiller.

While the debate over the scientific nature of economics continues, some individuals have turned to alternative methods such as psychic readings to gain insights into the economy and financial markets. Psychic readings on topics such as investments and the stock market have become increasingly popular in recent years, with some individuals claiming to have gained valuable insights from their readings.

However, like with any alternative practice, it is important to read with a critical eye and to do research to find reputable psychics. While psychic readings may provide unique perspectives on economic issues, it is important to keep in mind that they are not based on traditional scientific methods and should not be relied upon as the sole source of financial advice. As with any investment decision, it is important to consider a variety of factors and to seek guidance from multiple sources before making a decision.

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