Prediction: The long and short of it
Antony Millner (University of California, Santa Barbara) and Daniel Heyen (ETH Zurich)
GPI Working Paper No. 7-2020, published in American Economic Journal: Microeconomics
Commentators often lament forecasters’ inability to provide precise predictions of the long-run behaviour of complex economic and physical systems. Yet their concerns often conflate the presence of substantial long-run uncertainty with the need for long-run predictability; short-run predictions can partially substitute for long-run predictions if decision-makers can adjust their activities over time. So what is the relative importance of short- and long-run predictability? We study this question in a model of rational dynamic adjustment to a changing environment. Even if adjustment costs, discount factors, and long-run uncertainty are large, short-run predictability can be much more important than long-run predictability.
Other working papers
In defence of fanaticism – Hayden Wilkinson (Australian National University)
Consider a decision between: 1) a certainty of a moderately good outcome, such as one additional life saved; 2) a lottery which probably gives a worse outcome, but has a tiny probability of a far better outcome (perhaps trillions of blissful lives created). Which is morally better? Expected value theory (with a plausible axiology) judges (2) as better, no matter how tiny its probability of success. But this seems fanatical. So we may be tempted to abandon expected value theory…
Altruism in governance: Insights from randomized training – Sultan Mehmood, (New Economic School), Shaheen Naseer (Lahore School of Economics) and Daniel L. Chen (Toulouse School of Economics)
Randomizing different schools of thought in training altruism finds that training junior deputy ministers in the utility of empathy renders at least a 0.4 standard deviation increase in altruism. Treated ministers increased their perspective-taking: blood donations doubled, but only when blood banks requested their exact blood type. Perspective-taking in strategic dilemmas improved. Field measures such as orphanage visits and volunteering in impoverished schools also increased, as did their test scores in teamwork assessments…
Aggregating Small Risks of Serious Harms – Tomi Francis (Global Priorities Institute, University of Oxford)
According to Partial Aggregation, a serious harm can be outweighed by a large number of somewhat less serious harms, but can outweigh any number of trivial harms. In this paper, I address the question of how we should extend Partial Aggregation to cases of risk, and especially to cases involving small risks of serious harms. I argue that, contrary to the most popular versions of the ex ante and ex post views, we should sometimes prevent a small risk that a large number of people will suffer serious harms rather than prevent…