economy fed Markets

Is The Fed Smarter Than ‘The Wisdom Of Crowds’? Goldman Answers

How many M&Ms are in this jar?

How many M&Ms are in this jar?
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6 comments on “Is The Fed Smarter Than ‘The Wisdom Of Crowds’? Goldman Answers

  1. I’ve been playing around with forecasting on the Good Judgement website, which is an outgrowth of Phillip Tetlock’s work that led to his book “Superforecasting.” Although Tetlock’s work originally began in the political science domain, it’s expanded and currently there are a few economics questions on there.

    I personally am participating in two questions: (1) Will the United States experience two consecutive quarters of a negative real GDP growth rate in 2019?, and (2) On 1 August 2019, will the upper limit of the Federal Reserve’s target range for the federal funds rate be higher, the same, or lower than it was on 31 January 2019?

    It’s interesting to see how the crowd forecasts (and why) compared to the Fed. It’s also interesting to isolate from the crowd those forecasters who have done very well in the past on other questions, and see how their forecasts compare to the larger crowd (and the Fed).

    If you’re going to be thinking about crowd forecasts, you might consider doing some reading on the Extremizing algorithm.

  2. Much of the improvement in forecasting performance is due to statistical methods that have improved drastically in the last few decades

  3. Inasmuch as crowd-sourcing forecasts reflect a version of the law of large numbers, I think 40 forecasters hardly constitute a “crowd.” Your last question is the most interesting though. If business leaders, banks and algo writers program into their work the forecast parameters from the Fed and the pros, then doesn’t that constitute not necessarily accuracy of prediction, but self-fulfilling prophesy instead?

  4. Harvey Darrow Cotton

    Fed board members who actually vote don’t know how they will vote from one quarter to the next, so it unreasonable for anyone else to predict it for them.

  5. In a skeptics point of view , and I feel this needs to be interjected here.. First….. The Fed has the ability to influence the narrative.. Meaning when their ideal wish list is not coming true ….well they just influence the narrative.. They also have the ability to skew the numbers if you will in very subtle ways as do the Politicians (CPI or unemployment calculation methodology for instance.) Moving the goalposts can also alter everyone else’s projection as they lack in that ability.

    Second ….in the projection business ,no matter what level one stands at..Sometimes you are on and sometimes not.. The human mind is predisposed to acting out preconceived scenarios ..True objectivity is little more than a theory . Can be fun watching even the best analysts struggle with realities…. The machines have an edge here but even they are flawed in their outcomes.

    Thirdly….It all depends on what questions one is attempting to ask and answer (M&M ‘s or something relevant).
    A real interesting post here H…….ideal for an Easter Sunday…Next week is another adventure in the unknown…Can’t help thinking about the Mike Tyson comment we run into occasionally …..

  6. Isn’t the main problem if people believe a forecast and act on it, the forecast will no longer be accurate.

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