Economist utters optimistic tautology

From here via Greg Mankiw, the economist Jeremy Siegel is quoted as saying:

If post-World War II patterns hold for the future, he calculated last week, prospects for stock investments are excellent: there would be a 96.6 percent probability of a positive return for the next 5 years, going up to 100 percent for 10- and 20-year periods. Average real returns would be stellar — about 11 percent annually in holding periods from 1 to 20 years.

A 100% probability, eh? An impressive, stick-your-neck-out prediction! But wait; what was that predicate? It was, “if post-World War II patterns hold“. And what are the post-WWII patterns in question? Why, only that over any given twenty-year period, stocks went up. So what he’s saying is that, if stocks continue to go up over twenty-year periods, you can always get a positive return from stocks over twenty years. No duh! If A then A, very good! But we’d quite like to know the probability of A, thanks. In other words, can we please have a probability for the variable of actual interest, namely “will post-WWII patterns continue to hold”?

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1 Comment

Filed under Economics, World

One response to “Economist utters optimistic tautology

  1. KUIPY

    Actually it sounds like gambler’s fallacy, “being on a winning streak” and all that.

    (of course deep down everyone knows gambler’s fallacy is not a fallacy)

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