Monday, October 10, 2022

Lars P. Syll — Methodological overconfidence

You can't get more mileage out of your model than the assumptions contain. It's called "scope."

Overconfidence or sleight of hand? The presumption is that professionals know better. But if they admit the scope, their influence would be limited.  This could also be accounted for by professionals acting unprofessionally owing to perceived advantages of doing so. So either way, perverse incentives seem to be in play.

Lars P. Syll’s Blog
Methodological overconfidence
Lars P. Syll | Professor, Malmo University

1 comment:

Matt Franko said...

“like the Panic of 2008,”

lol… It wasn’t a panic the Fed did a large and rapid increase in reserve assets at the depositories which put them below consolidated leverage regulatory levels and the credit provision function had to cease so institutions that relied on credit provision had to shut down… Lehman etc..,

Same levels as they are approaching today thru reduction in the NPV of depository regulatory assets…

iow in 2008 they increased the denominator via reserve addition while today they are reducing the numerator via risk free rate increases in this proportional regulatory function..

Maybe take 8th grade algebra again…