The Signal and the Noise by Nate Silver

This is a brief summary of Nate Silver's book The Signal and the Noise: Why So Many Predictions Fail — but Some Don't. (This is not a full outline.)

    • Experts have trouble accurately predicting the economy, earthquakes, stock market, or r weather after about ten days
    • Successes in predictions include weather (short term), performance of baseball players
    • Weather forecasts based on complex weather models after about ten days are actually worse than climate-based predictions because of amplified noise
    • Economists are overconfident in their predictions
    • Think probabilistically
    • Include confidence interval
    • Think like Bayes: use new information to update forecasts
    • It’s easy to fit models to data (noise) in the past, but it’s harder to make them work reliably in the future.
    • Use understanding of how a process works (e.g., weather) to make better predictions
    • Dynamic systems (e.g., economy) make understanding and modeling a system very complicated.
    • The past may not be a good indicator of the future
    • Anonymous economic forecasters did better than identified forecasts---apparently because identified forecasters were going for “the big score”
    • Some predictions are self fulfilling, while others are self cancelling (e.g., economic stimulus)
    • Foxes vs hedgehoges
      • “‘the fox knows many little things, but the hedgehog knows one big thing’”
      • “hedgehogs are type A personalities who believe in Big Ideas—in governing principles about the world that behave as though they were physical laws and undergird virtually every interaction in society. Think Karl Marx and class struggle, or Sigmund Freud and the unconscious. Or Malcolm Gladwell and the ‘tipping point’”
      • Foxes, by contrast, “are scrappy creatures who believe in a plethora of little ideas and in taking a multitude of approaches toward a problem. They tend to be more tolerant of nuance, uncertainty, complexity, and dissenting opinion. If hedgehogs are hunters, always looking out for the big kill, then foxes are gatherers”
    • Conclusion
      • Pay closer attention to our biases
      • Acknowledge our limitations
    • Focus in on identifying the key variables that influence outcome