How accurate are political analysts? That is what I asked after having posted a number of articles on financial predicting. Philip Tetlock, professor at University of Berkley, is the man who answered this question in his book Expert Political Judgment: How Good Is It? How Can We Know? It is a summary of his research that lasted for 20 years. It was focused on the accuracy of political forecasts (e.g. will there be a violent end to Soviet Union or not?). He analyzed 284 political commentators and gathered 82 361 predictions.
What is the result of Tetlock’s research? Political forecasts are useless. You can do better by tossing a coin or by hiring a monkey. What is even more striking is the fact that analysts that specialized in a certain area if politics were less reliable than analysts who had just general knowledge. Consequently, Tetlock found that knowing a lot can make analyst’s forecasts less accurate. You can learn more here.
As a result, investors should not base their investment decisions on political predictions (which party will win the election?; will Russia and China cooperate more closely?…). Everybody would be better off investing in low cost index funds that do not pretend they can outsmart the markets and predict what will happen.
Photo: Haas Berkley.