Forecasting Pitfalls

The paper highlights the pitfalls of forecasting by considering a trip by car—but with inaccurate maps in a world where roads are unexpectedly shut or opened. Behind the scenes lies a new theoretical framework for economic forecasting which acknowledges that economic models are simplified representations of an economy prone to sudden shifts. That approach explains the prevalence of forecast failure; accounts for the results of forecasting competitions; and explains the surprisingly good performance of ‘consensus’ forecasts. The paper offers a non-technical discussion of that theory, and draws some lighthearted conclusions on how to avoid some of the pitfalls awaiting unwary forecasters