the signal and the noise - on predictions

the signal and the noise - bookforum.com / current issue: Predictions fail for many reasons, but Silver contends that the most frequent cause is a flaw in the forecaster’s assumption, as opposed to an inherent shortcoming in the methodology. The now notorious ratings agencies that continued to stamp AAA ratings on collections of highly risky mortgages into 2008, he notes, would nonetheless present their findings with a full flourish of statistical exactitude, working out the odds of a security paying out to two decimal places. But the larger problem, of course, was with the foundational assumptions that shaped the universe of mortgage-backed securities—the supposition, for example, that the worst-case scenario was a manageable downturn in housing prices that was adequately provided for in their models.