Seeking Alpha

John Lounsbury's  Instablog

John Lounsbury
56,395 Followers
81 Following
Send Message
John Lounsbury, Managing Editor and Co-founder of Global Economic Intersection, provides comprehensive financial planning and investment advisory services to a small number of families on a fee only basis. He has a background which includes 34 years with a major international corporation, 25... More
My company:
John B Lounsbury CFP
My blog:
Global Economic Intersection
  • Logic, Bias and Economics 1 comment
    Aug 9, 2009 8:34 PM
    John Mauldin has outdone himself this weekend with an article entitled "Six Impossible Things Before Breakfast".  You can read the entire remarkable post (here).

    I want to focus on just a couple of thoughts that tie together in a compelling way for me.  First, John discusses how bias influences how we react to things that could be presumed to be purely logical.  He proposes that how we perceive "facts" is colored by our beliefs.  He offers the following graph, which summarizes (from a study, I presume) responses in a group presented with sets of facts (or theories), some of which are valid and some of which are invalid.  First, each participant identifies which facts they believe to be valid and which to be invalid.  Then they are presented with the proof of validity or lack of validity.   


    This graph shows the power of the initial bias in how the proofs are accepted.  John Mauldin applies these observations to the dismemberment of the Efficient Market Hypothesis.  The question of global warming came to my mind when seeing this.

    Mauldin goes on to point out how dismal economists are in making projections of such macro economic factors as GDP, shown below.  There is an obvious bias for the average of all economists to project the long-term past averages forward, and in the case of GDP, with a rather rosy bias.


    However, economists systematically can adjust toward reality as the time frame for projection becomes shorter.  In the example shown below, the average forecast was nearly 100% in error 24 months in advance.  As the timeframe shortens, the accuracy improves linearly until there is no error when "projecting" the current situation.  Would it be appropriate to say that a Ph.D. in economics is equivalent to a degree in staying awake and aware of your surroundings?  Perhaps too harsh?  Show me some different data before we discuss my bias.



    Read John Mauldin's masterpiece (here).  It contains a wealth of logical reasoning and is very entertaining to boot.



Back To John Lounsbury's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

This post has 1 comment:

Track new comments on this article
  •  
    John

    One of my favorite quotes about economists is this one from Nicolas Taleb

    The environment in financial economics is reminiscent of medieval medicine, which refused to incorporate the observations and experiences of the plebeian barbers and surgeons. Medicine used to kill more patients than it saved – just as financial economics endangers the system by creating, not reducing, risk. But how did financial economics take on the appearance of a science?
    10 Aug 2009, 07:10 AM Reply Like
Full index of posts »
Latest Followers

StockTalks

  • News and picture summary of St Louis Airport tornado damage at GEI News and also my Instablog
    Apr 23, 2011
  • News, picture summary of St Louis Airport tornado damage at GEI News and my Instablog http://bit.ly/dVfo22 and http://seekingalpha.com/p/3lpy
    Apr 23, 2011
  • Most of world finally had an up day Tuesday and all 11 major markets in the Far East are following suit, led by Tokyo and Seoul (+1.8% each)
    Apr 20, 2011
More »

Latest Comments


Most Commented
Posts by Themes
GEI, 1920s, 1930s, 2000s, 2010, 3-month treasury, ABA, Abacus, Abu Dhabi, ACA, accounting, Adam Smith, ADIA, Afghanistan, Africa, age, AIG, airport, Ajay Shah, Al Qaeda, Alaska, Albertarocks, Alex Rodriguez, alien, Alix Partners, allocation, alternative enrgy, American Economic Association, American Economics Association, Amish, Anchorage, Angelides, antihydrogen, antimatter, appropriations, arctic, Arends, Argyle Executive Forum , Asia, asset sales, asteroid, asteroids, auction, Australia, bail out, bailout, Bailout Nation, Bair, balance sheet recession, Baltic Dry Index,
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.