According to acclaimed Freakonomics author Stephen J. Dubner, the business of prediction is a slippery one, fraught with laughably consistent innaccuracy. A recent Freakonomics Radio podcast titled “The Folly of Prediction” explains just how preposterous the process of prediction is.
So-called “pundits” and talking heads on TV have an economic reason for making bold predictions—they are paid appearance fees to make these unfounded claims on television, or salaried to write opinion columns touting their supposedly informed positions.
This pecuniary incentive promotes wild conjecture. The wilder, the better, as it turns out. Since the financial rewards for blurting out crazy assertions are high (fat appearance fees, large salaries), and the penalties nonexistent (no one gets in trouble for making bad predictions, which are immediately forgotten), everyone can make predictions all the time without fear of reprisal.
This is simple economics—the benefits far outweigh the costs. This skewed incentive structure is the reason everyone under the sun seemed to have an opinion about what Christie would ultimately decide to do…even though they did not have the slightest clue, only hazy guesswork (at best). You probably won’t hear too many apologies today from those who inaccurately predicted he would enter the race.
The one thing that was certain about all the rampant supposition was that anyone venturing a guess stood to benefit somehow from making that guess. So, the next time something like this plays out on every channel and in every paper and website in the nation, pay as little attention as possible to all the white noise, and wait for an official announcement.
Dubner’s podcast raises other interesting points about the prediction market created by 24/7 cable news channels and websites—the celebrated and well-compensated punditocracy is only slightly better at predicting world events and political outcomes than your average, serial New York Times reader. Not a great average for people who are employed full-time and paid handsomely to make predictions.