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Old 31 May 2014, 07:38 PM
jimmy101_again jimmy101_again is offline
Join Date: 29 December 2005
Location: Greenwood, IN
Posts: 6,912

Originally Posted by Johnny Slick View Post
That isn't to say that economies never contract 2 quarters in a row, it's that when this happens it's as close to random as anything can be, because if it wasn't random we'd have been better able to predict them by now.
I think there is a logical fallacy or two in there somewhere.

If you can predict an event, and that event is bad, and there is anything you can do to avoid that event, then the act of predicting tends to be a self-cancelling prophecy. The prophecy is always wrong since people move to correct things before the event happens.

Secondly, the act of predicting (and publicizing or acting on that prediction) changes the system in a way that cannot be modeled very well. The classic example of this in financing are stock market prediction programs. If someone develops a highly accurate model that correctly predicts past behaviors (this has been done many times) and then applies that model to the current market then the current market is no longer the same as it was when the model was developed. Predicting and then acting on that prediction invalidates the model. You have to now develop a new model that takes all the previous factors into account plus the existence of the prediction system. Of course that second generation model also affects the system and is now also incorrect. Repeat until you can no longer convince anyone that modeling is a good idea.
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