Forecasting, Prediction and Precision: A Commentary

Forecasting involves an underlying conceptualization of probability. It is this that gives sense to the notion of precision in number that makes us think of economic forecasting as more than simply complicated guesswork. We think of it as well-founded statement, a science and not an art of numbers. However, this understanding is at odds with the nature of social reality and the attributes of the forecaster. We should think differently about how we both anticipate and make the future and what this means. Foresight is perhaps a more appropriate term. This paper addresses two issues that rarely receive attention in the field of economics. First, why is there a continued high demand for economic forecasts despite their lack of success in anticipating significant turning points in any given system? Second, what are forecasts actually assuming about the nature of a system and the future state of the world? In the paper I approach these issues indirectly. My intention is to highlight their significance by setting out a series of arguments that encapsulate the characteristics of a forecaster required to match a common understanding of what forecasting is intended to do. The structure of this paper is unusual for a contribution in the field of economics. It follows a format more commonly used in analytical philosophy when the author wants to focus on a problem and where the intention is to provoke further questioning, rather than supply ready answers. As such, it should not be read as a comprehensive account of all possible approaches to methods or philosophies of forecasting and attendant issues of probability. Three points are worth stating at the outset as a guide to what follows: Forecasting tends to forget that it is conjecture and what that really means. Its scientism overburdens how it is articulated and how it is perceived. We tend to think of forecasting as degrees of precision in prediction and of successful prediction as successful description of phenomena at some future point. There is, as the following discussion demonstrates, something basically inconsistent within the implications of this minimalism. Since the greater part of the credibility of, and authority of, economics resides in its claims to effective forecasting these points are highly relevant to the state of the discipline. Read the Open Peer Discussion on this paper »