Comments on: Econometric Forecasting is Worthless http://pushingdirt.com/econometric-forecasting-is-worthless/ on commercial real estate Tue, 07 Feb 2012 22:07:11 +0000 http://wordpress.org/?v=2.6.5 By: Adam Gordon http://pushingdirt.com/econometric-forecasting-is-worthless/#comment-468 Adam Gordon Mon, 16 Feb 2009 14:37:00 +0000 http://pushingdirt.com/?p=432#comment-468 Absolutely right, econometric forecasting is worthless in most situations, but it's worth knowing when and why. If (and it's a big if) the system under study is slow moving, and we know what all the factors affecting outcomes are (it is a closed system) and how all the factor inputs influence each other, then econometric predictions will work. Most real-world future situations are too open, too complex, too fast moving, too multifaceted to be predicted in this way. There's a great essay "Why Can't We Predict?" Neil Duncan; New Scientist, Vol. 136, Issue 1841 (03 October 1992) that absolutely nails this issue in a few pages. I offer an analysis of the limits of quantitative/econometric foresight in my new book, Future Savvy (American Management Association, NY, 2009) The book has a summary forecast-testing battery, showing forecast consumers how to assess and discern quality in the future thinking they read and hear, and very high on this list is knowing when quantitative methods will work and when they won't. Absolutely right, econometric forecasting is worthless in most situations, but it’s worth knowing when and why. If (and it’s a big if) the system under study is slow moving, and we know what all the factors affecting outcomes are (it is a closed system) and how all the factor inputs influence each other, then econometric predictions will work. Most real-world future situations are too open, too complex, too fast moving, too multifaceted to be predicted in this way.
There’s a great essay “Why Can’t We Predict?” Neil Duncan; New Scientist, Vol. 136, Issue 1841 (03 October 1992) that absolutely nails this issue in a few pages.

I offer an analysis of the limits of quantitative/econometric foresight in my new book, Future Savvy (American Management Association, NY, 2009) The book has a summary forecast-testing battery, showing forecast consumers how to assess and discern quality in the future thinking they read and hear, and very high on this list is knowing when quantitative methods will work and when they won’t.

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