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R. Tissot , Forecasting oil prices
----- Original Message -----
From: Roger Tissot
Sent: Thursday, January 22, 2009 12:05 PM
Subject: forecasting oil prices
Dear Mr. Campbell
I really enjoyed your column on oil price forecasting. I couldn't agree more.
I think one of the biggest mistakes in recent years economic teaching has been the over-dependency on sophisticated mathematical models as computer capabilities. The problem is that all those models and analysis depart from one big fallacy: human rationality.
I think if there is anything positive from the current economic crisis is the end of that idea, pushed to the extreme by professor Lucas in his famous “Lucas critique”: people make decision based on future expectations. That of course assume humans have not only perfect access to information but also a very sophisticated understanding of how the economy works, and of course they are devoid of any emotion
Humans - we - are all emotional creatures and thus prone to irrationality.
Until those “gurus” understand that, all the money paid to the experts is a waist of money…
The best we can do, for those who modestly try to help companies investment process, is to highlight the political, social and economic conditions that drive governments to make some decisions, or people to choose some political preference, etc. So, in addition to finances or economics, we must pay attention to history, politics, sociology, psychology, and geography.
In short, the gurus, and the many “talking heads” in Washington , NY or London need to be more modest, accept the fact that to err is human, and that nobody knows what the future looks like. But of course if any “guest speaker” starts with that introduction, nobody would listen. We human are also gullible creatures in desperate search for direction…we want the illuminated to tell us what we want to hear…and that of course is a huge business opportunity!
Cheers
Roger Tissot
Petroleumworld 02/03/09
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