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April 15, 2013

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william

Two responses:

One: Alternatively, you could say that point estimates (predictions) should come with error bars, and we should care greatly about how wide they are. Are there any economic forecasters who do this? Be surprised if there weren't.

Two: sometimes you need a numerical estimate/prediction to feed into some other process (i.e. you need to predict demand for something so you can order stock). Here, you need a numerical estimate, regardless of precision. You accept the error (i.e. eat the loss caused by it, or force your supplier to eat it for you).

Perhaps you're really ranting against the tiny up/down flickers of GDP that are freighted with so much import; but that issue is manufactured by Osborne (in fact, the only manufacture that has increased under his tenure as Chancellor).

chris

@ William - the Bank of England routinely provides error bars. I suspect they're implicit in most other forecasts. But it is often criticised by non-economists for not being more precise; there's a tradeoff between precision and accountability.
I'm not sure how many people in practice base inventories on forecasts.I suspect more often it's a rule of thumb (buy x when inventories hit x) adjusted for eg seasonal variations.

rogerh

Mechanisms rather than models.

An approximate answer to the right question is always better than a precise answer to the wrong question.

Andrew

The word you are looking for is "accuracy".

Your post is about the well-understood ( at least in science) trade-off between precision and accuracy.

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