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Thank you Mr Weatherman

This article originally published in The Northern Daily Leader on 5 January 2013.

You know you’re getting close to the end of the year when nearly every television show and newspaper starts running long lists of the ‘Best…of 2012’. The last few weeks I’ve seen segments about the best fad diet of 2012; the best celebrity love-fight; the best sporting moment; the best mobile phone and even the best funny cats internet video of 2012. Fortunately that’s all behind us, now that we’re well into 2013. Unfortunately however there’s simply been a shift of emphasis, and now the morning shows and newspapers are full of predictions for the year ahead. What are the top holiday destinations for 2013? Which industries will be best for employment in the year ahead? What will be the best-selling smartphone in 2013? Who will win the league, AFL or the Australian Open? Whatever the event, whatever the subject matter, there’s always somebody who is willing to offer a prediction over future events in the next twelve months.

Although I don’t pay much attention to predictions of the most exciting fashion trends for 2013, I do notice the economic and financial forecasts, of which there seems to be a never-ending supply. It seems that an entire community of economic and financial pundits exists for the sole reason to appear in the media and predict the future. They’ll tell you what the stock market will do this year; how fast Australian GDP will grow in the second quarter; what will happen to the iron ore price and even what assets to buy. What they won’t tell you however, is that the majority of their predictions will not come true. Neither will they tell you about the predictions they made last year which also did not come true. In fact research by the University of Pennsylvania has shown that the more famous the person making the prediction, the greater the likelihood they will be wrong. It turns out that the more confident the person feels about their prediction, the more chance their prediction will be incorrect. In reality, most economic forecasters are generally no more accurate than tossing a coin.

You may find it surprising that the most accurate forecasters are not the ‘financial gurus’ on television, but are in fact weather forecasters. This is because they are the only forecasters who receive immediate feedback on the accuracy of their projections (they need only look out the window). That’s not to say they always get it right, but they do get it right more often than economists or stock market pundits. Unless of course it’s true that they forecast rain only to keep everyone else off the golf course.