At the beginning of reading the book, one of my predictions turned out to be wrong. Namely — that reading would be difficult because I am not a specialist in economics or finance.
First, it turned out that reading is possible (and even with enthusiasm), and second — "The Signal…" is not about economics in economic terms, but about people, their psychology, and their ability to predict.
Silver starts from afar — from the information base of predictions, from the very beginning of printed sources. In particular, books. Interesting figures — if you recalculate the cost of rewriting one manuscript (before the era of printed books) into modern money, a rather thick book "The Signal and the Noise…" would have cost the customer $20,000 USD. Nate Silver provides many figures (confirmed). There are just 54 pages of footnotes with references to the sources used. Regarding the invention of the printing press, the prediction about the spread of knowledge familiar to authors and readers and the activation of emancipation processes in society came true. But — an unforeseen outbreak of long religious wars occurred; "the bloodiest era in human history began" (c). And along with the rapid spread of knowledge, errors spread just as quickly. Along with the printing of high-quality (finally!) geographical maps, "the bestseller list was immediately topped by heretical religious and pseudo-scientific works" (c). Does anything come to mind?
The author talks about American realities and mentions a trait characteristic of Americans — the belief in their ability to shape their own destiny. This leads to the naive faith in the inevitable fulfillment of predictions, in the idea that after "A" comes "B" inevitably, and the ignoring of facts that do not fit into the desired picture. Is this trait unique to U.S. residents?
Predictions by political scientists, seismologists, biomedical researchers, counterterrorism experts, and meteorologists have often proven to be erroneous. They were made by highly qualified specialists from different countries, and "such mistakes cost humanity dearly" (c).
Silver considers prediction an integral part of our lives and views foresight as "a property of human psychology, not as a special task for narrowly specialized experts in a particular field" (c). At the same time, the author categorically does not support the idea that there is no objective truth. On the contrary, he argues that the main condition for creating a quality forecast is the belief in the existence of objective truth and "serious intentions to achieve it".
After all, the causes of the financial catastrophe (a real event; Nate Silver uses it as an example to discuss forecasting failures) that destroyed lives, family savings, and the country's economy lay precisely in the realm of psychology. No matter how rationally experts from major credit rating agencies (in their business-like, deliberately emotionless suits) tried to convince others of their forecasts, their graphs and figures were based on the same naive belief in the fulfillment of the desired future picture. And in the unwillingness to see obvious facts (and real threats). In the illusion that errors change only in a linear direction (so they are easy to calculate and ensure they do not have a significant impact). But this is not the case where "Ariman’s arrow" (I. Yefremov, The Hour of the Bull) works. Here it either "does not fly" or begins to "fly in leaps". And this applies not only to "rosy" forecasts. "Doomsday" forecasts can also come true with the opposite accuracy.
It’s not about underestimating or overestimating forecast assessments. The issue lies in the forecast itself, which greatly underestimates probability and forgets about uncertainty.
When you read Schiller’s conclusion (a researcher who studied real estate markets from the Netherlands to Norway) about the pattern: "unnatural growth in real estate prices always ends in a collapse" (c), you think: "Hmm, is this really only about real estate?" Personally, my understanding of the real estate and investment sphere comes only from TV series. In them, investing in real estate is usually portrayed as something incredibly cool. And at the everyday level, this idea is supported. But Silver does not let you indulge in illusions. Imagine that in 1896, you invested $10,000 USD in real estate. How much would you, a long-liver, have received in 1996? Did you imagine that sweet number? Now — reality adjusted for inflation. $10,600 USD. In words — ten. Thousand. Six hundred. U.S. dollars. Over 100 years, Karl, over 100 years!
A few dozen pages later, the relentless Nate Silver shatters another illusion — about the benefits of being a monopolist. Using the example of selling ordinary lemonade, he warns — if you are the only owner of the only lemonade vending machine in your neighborhood, then in 40-degree heat… No, you won’t get rich. Simply, "very soon, some neighbor’s child will open their own cheaper shop with cheaper lemonade" (c).
And what about the catastrophe? When it became clear that things were bad — you won’t guess! "Wall Street continued to bet on real estate, and quite actively at that" (c). Well, the orchestra on the "Titanic" was playing, at least understanding what they were doing and why.
You took out a mortgage (after all, it’s just about to happen, it can’t be otherwise — big money will appear) and now you’re taking out a loan to pay for the mortgage? There’s a fancy word for such a loan: "leverage." True, a leverage loan in plain language sounds like "a stupid loan"…
As for me, this brings to mind the word "resource" (in the psychological sense) and the expression "beating a dead horse."
It’s even boring to continue about the catastrophe — illusions were maintained, illusions were dispelled when the destruction became very obvious, and then came the turn of fear and greed. Silver calls this financial crisis the result of false predictions and suggests viewing it in three acts — like a bad play.
According to Nate Silver, the obstacles to successful forecasting are the inability to distinguish between risk and uncertainty; the disrespect for uncertainty and the refusal to accept it. Also, experts’ avoidance of potential problems when new data changes the perception of the usual state of affairs. Then changes become necessary, to which the expert is psychologically unprepared.
Thus, our trust in television "experts" or the justifying behavior when "everything is going off plan" becomes more understandable.
Surely, each of us can now recall predictions that were once made based on plausible, scientific, modern data for the forecaster. But which turned out to be completely wrong with the acquisition of practical experience and new research results. For example: that electric light causes insanity (let’s stick with gas lamps). Or that women receiving higher education would lead to their infertility. After all, a woman’s physiology is structured in such a way that mental strain from studying causes blood to rush to the brain and, accordingly, away from the uterus — and there you have it! So — "Kirche, Kinder, Küche". Or — if a baby starts swimming before walking, it will "predictably" grow up to be a good swimmer.
"Linearity" in forecasting does not work even in the case of "doomsday" scenarios. Such as the idea that progress in society, such as respect for the individual, feminism, and tolerance for diversity, will necessarily and predictably lead to the destruction of values and civilizational decline. And that the only way to save us is to return to the "blessed patriarchy."
For every "signal" there is a lot of "noise." Nate Silver suggests learning to distinguish between them.
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