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Me and the Mathbabe
Posted By Russ Roberts On December 20, 2012 @ 9:32 am In Financial Markets,Gambling with Other's $ | Comments Disabled
Cathy O’Neill who blogs at Mathbabe  has a superb critique (which she cross-posted at Naked Capitalism ) of Nate Silver’s new book on modeling and prediction. I agree with almost everything she says, particularly her view of politics and the incentives of modelers. Interestingly, she is part of the Occupy movement. I am not. But there is a convergence of views between some folks in the Occupy movement and some of us with classical liberal views especially with respect to incentives and public choice. I suspect our solutions are different but the diagnosis overlap in interesting in and of itself. Read the whole thing. Here’s an excerpt:
Silver chooses to focus on individuals working in a tight competition and their motives and individual biases, which he understands and explains well. For him, modeling is a man versus wild type thing, working with your wits in a finite universe to win the chess game.
He spends very little time on the question of how people act inside larger systems, where a given modeler might be more interested in keeping their job or getting a big bonus than in making their model as accurate as possible.
In other words, Silver crafts an argument which ignores politics. This is Silver’s blind spot: in the real world politics often trump accuracy, and accurate mathematical models don’t matter as much as he hopes they would.
As an example of politics getting in the way, let’s go back to the culture of the credit rating agency Moody’s. William Harrington, an ex-Moody’s analyst, describes the politics of his work as follows:
In 2004 you could still talk back and stop a deal. That was gone by 2006. It became: work your tail off, and at some point management would say, ‘Time’s up, let’s convene in a committee and we’ll all vote “yes”‘.
To be fair, there have been moments in his past when Silver delves into politics directly, like this post from the beginning of Obama’s first administration, where he starts with this (emphasis mine):
To suggest that Obama or Geithner are tools of Wall Street and are looking out for something other than the country’s best interest is freaking asinine.
and he ends with:
This is neither the time nor the place for mass movements — this is the time for expert opinion. Once the experts (and I’m not one of them) have reached some kind of a consensus about what the best course of action is (and they haven’t yet), then figure out who is impeding that action for political or other disingenuous reasons and tackle them — do whatever you can to remove them from the playing field. But we’re not at that stage yet.
My conclusion: Nate Silver is a man who deeply believes in experts, even when the evidence is not good that they have aligned incentives with the public.
Distrust the experts
Call me “asinine,” but I have less faith in the experts than Nate Silver: I don’t want to trust the very people who got us into this mess, while benefitting from it, to also be in charge of cleaning it up. And, being part of the Occupy movement, I obviously think that this is the time for mass movements.
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URLs in this post:
 Mathbabe: http://mathbabe.org/2012/12/20/nate-silver-confuses-cause-and-effect-ends-up-defending-corruption/
 Naked Capitalism: http://www.nakedcapitalism.com/2012/12/cathy-oneil-why-nate-silver-is-not-just-wrong-but-maliciously-wrong.html
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