Nov 4, 2009

Economics Conundrum - Case of Information Over-supply?

I read this amazing article in BusinessWeek - "Why No One Knows Where the Economy Really Stands".

Check this excerpt about the Jobs Data during the boom, "BLS overstated the strength of the economy during good times, and now that fiction will come crashing down on our heads in the first quarter of next year."

The next excerpt of note is on the Stock Markets, "But using what the stock market is doing now as factual data is potentially treating another asset bubble as financial reality."

Just makes me think if the if we are living in a world of Information oversupply where every little bit boosts one section of investor or another? It is Irrational Exuberance, but is it just unavailability of well organized data? Reminds me of our MicroEconomics Professor - Prof. Gupta's favorite phrase, "Garbage In, Garbage Out". :)

Sometimes one feels so much information just leads to more confusion. But then, without it we have the information asymmetry problem. Not sure what we can do of this paradox.
I guess, the author concludes well when he says that real issues can be tackled once accurate data is obtained and analyzed.


Paddy Killimangalam said...

Keynes' compared markets to a beauty contest in a newspaper. Six photos are provided and people have to vote for the prettiest face. If your selection wins, you stand to win a prize. But here's what ended up happening...“It is not a case of choosing those [faces] that, to the best of one’s judgment, are really the prettiest, nor even those that average opinion genuinely thinks the prettiest. We have reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be. And there are some, I believe, who practice the fourth, fifth and higher degrees.” (Keynes, General Theory of Employment Interest and Money, 1936).

So is the case with economic predictions - every economist is trying to paw off something that is acceptable to the public. Only way to make sense is use collective wisdom, of which markets are a good indicator.

Siddharth said...

@Paddy - Wow! Reminds me of the organizational behaviour patterns class. Keynes must have been truly insightful in noting that pattern at this level.


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