Wall St. Cheat Sheet: Nouriel Roubini Unmasked; Lessons

The following article, from Wall St. Cheat Sheet, scoffs at the track record of high profile economist Nouriel Roubini in making predictions.

According to Wall St. Cheat Sheet:

``In August I wrote an article “Is Nouriel Roubini a False Prophet?” Apparently, some people are so smitten with Roubini they actually ignored all the cited articles and said, “No.” Consequently, I teamed up with a bunch of people around the world on an open source project to continue our mission exposing false prophets and help unwash those well-meaning brains

``The following video is a large collection of evidence proving Roubini has a horrendous record as a prognosticator. If you too know someone who has been listening to the seductive sounds of Roubini’s mantras, send them this helpful deprogramming message:

Normally, such take downs usually won't make my post. However, there are lessons to be gleaned from this critique which necessitates some discussion.

1. The Role of Media. This reveals of the proclivity of media to glamourize personalities who glibly "represent" the Du jour issues regardless of their past performance.

The appearance of fluency, urgency and connectivity to current events translates to more coverage. Ergo, the celebrity status.

2. Expert problem. Nassim Taleb says that "intelligent or informed persons were at no advantage over cabdrivers" in making predictions.

Why? Because of egotistical problem. Again according to Mr. Taleb, ``The problem with experts is that they do not know what they do not know. Lack of knowledge and the delusion about the quality of your knowledge come together-the same process that makes you know less also makes you satisfied." (emphasis added)

In short, experts tend to confine themselves on what they know.

3. Knowledge problem. There is also the tendency for experts to lean on models and mathematical equations to "scientifically" construct predictions while disregarding the variability of the human response aspect.

According to F. A. Hayek, ``the unavoidable imperfection of man's knowledge and the consequent need for a process by which knowledge is constantly communicated and acquired. Any approach, such as that of much of mathematical economics with its simultaneous equations, which in effect starts from the assumption that people's knowledge corresponds with the objective facts of the situation, systematically leaves out what is our main task to explain."

4. Prediction dilemma.

The public tends to look for specific answers or forecasts from experts rather than examining the reasoning behind them.

For publicity seeking experts, an audacious gambit on forecasting could be a rewarding endeavor.

This, in my view, is where Mr. Roubini has capitalized from basking as a celebrity during last year's crisis.


The google trend chart shows of this phenomenon.

According to NYMAG, ``Since his forecasts proved correct, or semi-correct, Roubini's become an economic celebrity, practically a household name (okay, maybe only in the wonkiest of households, but still). He's been the subject of countless magazine profiles and is lauded by his peers. His independent economic research firm, RGE, has flourished, and he's always speaking at some conference, somewhere, around the globe. (And, with respect to Julia Ioffe, who wrote a great profile of the economist recently for The New Republic, we're not buying the idea that he's taking his message on the road out of some noble sense of duty. His fees must be astronomical at this point.) His stock has gone up with the ladies, too; as he recently told New York, "The recession has been great for me."

In my view, this represents as a personal victory for Mr. Roubini. He attained both the fame and the attendant fortune of booming business and adoring ladies. And maybe some of his critics could have been envious of this.

For us, this goes to show how doing our homework matters more than simply listening or heeding on the opinions of celebrity gurus.