02.22.09

Why Nouriel Roubini’s predictions are worthless

Posted in All Categories at 1:52 pm by Michael Goode

The simple answer? Because he was right mostly because of luck, just like many of the other “great seers” who “predicted” the crash. Say something often enough and eventually you will be right. He wasn’t even that right, having predicted financial troubles since 2004. I suggest checking out this interview with Philip Tetlock (an expert on experts) from the current issue of Money magazine.

here’s a good excerpt:

“Americans were shocked at how wrong the experts were. You weren’t. Why not?

My research certainly prepared me for widespread forecasting failures. We found that our experts’ predictions barely beat random guesses – the statistical equivalent of a dart-throwing chimp – and proved no better than predictions of reasonably well-read nonexperts. Ironically, the more famous the expert, the less accurate his or her predictions tended to be.”

PS — why do personal finance magazines continue to talk about home remodeling projects as ways to improve house sale prices? For example, the current issue of Money suggests adding a deck, which as an expected payback of 78%. Translate that into a return on investment, and that is an expected 22% loss! For replacing siding, the ROI is -15% and -22% for replacing windows. Pretty poor investment advice.

The only things you should do to a home to sell it are clean, paint, and fix things that are slightly broken or improve things that can be cheaply improved. A great example of this from when I sold my house a year ago is I had the bathtub and wall tiles in the bathroom painted (professionally, using some special coating, not latex- or oil-based

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