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Telling Stories

Posted By Russ Roberts On January 31, 2008 @ 10:07 am In Fooled by Randomness,Sports,The Economy | Comments Disabled

Which of these stories is right?

The Giants will win the Super Bowl. They have the momentum on their side. They have a great pass rush. They will be more relaxed than the Patriots because they don’t have the pressure of the perfect season. They’ll be able to control the ball with Brandon Jacobs. Manning hasn’t thrown an interception in the playoffs.

Or is it this one:

The Patriots are the better team. They have Super Bowl experience. They have the better coach. Their quarterback is better.They will shut down the Giants running game and force Manning to make mistakes.

So which one is better? Neither, of course. They’re just stories. But on Monday, one narrative will look convincing and the other will look foolish. But of course there was no way to really know ex ante which story was better. Ex post it will seem obvious. But even ex post, judging the stories or the storyteller is just so much finger-snapping [1]. It’s just one data point. Don’t be fooled by randomness.

Can a camel understand football [2]?

Playoffswhatsupw [3]

From the Asbury Park Press [4]:

Forget what the sports analysts are saying. Super Bowl XLII will end
in victory for the New York Giants, according to Princess, "Popcorn
Park Zoo’s famous prognosticating camel," the zoo announced Monday.

Princess
had an 11-6 won-loss record for games picked during the season. And
"her playoff standings were phenomenal, selecting eight out of 10
winning teams. Last week she accurately predicted the Patriots for the
championships, but not the Giants," the zoo press release states.

Each
week, Popcorn Park’s general manager, John Bergmann, has had the names
of two teams playing that weekend written on his hands. Then he offered
Princess her favorite snack — graham crackers — in both hands.
Whichever hand she nibbled from, that was regarded as her choice in the
game.

"I can’t explain it, but her predictions, more often than
not, are right on the money," Bergmann said. "I’m hoping she’s right
this time, because I’m a Giants fan."

I think most people understand that the success of Princess is not due to her understanding of football, or her "gut feeling" or her intuition. It’s just random. But on Monday morning, some human football "experts" will seem smart and some less so, simply because of one data point, the result of Sunday’s game.

 

Which story is better:

The economy is in crisis. The subprime mortgage mess has taken down the housing market and thrown the banking industry into turmoil. The crdeit crunch that is inevitable will soon knock out other industries as well.  The anemic December job numbers (18,000 net jobs created) show are just the beginning of the problem. A recession is imminent or we may already be in one. We have to do something.

Or is it this one:

Yes, housing and banking are struggling. But the rest of the economy is healthy. The December job numbers were atypical. Unemployment claims are down. We don’t need a stimulus package.

Who is right? Tomorrow, February 1, the January job numbers will be released. There are hints that they will be very strong. Some people’s stories will look wise and others less so, at least for a while. If the numbers are strong, the worriers will find some other data point to wave around.

But I suspect the experts are like Princess, the pigskin prognosticating camel. We are fooled by randomness. We don’t really understand the macroeconomy. Certainly not enough to micromanage it.

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[1] finger-snapping: http://cafehayek.com/2008/01/snapping-his-fi.html

[2] a camel understand football: http://www.ahscares.org/showarchive.asp?id=424

[3] Image: http://cafehayek.com/images/2008/01/31/playoffswhatsupw.jpg

[4] Asbury Park Press: http://www.app.com/apps/pbcs.dll/article?AID=/20080129/NEWS/801290356/1070/rss02

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