On the theory verus practice continuum, the needle has slid from all things emotional all the way over to the rational end of the spectrum. The basis for this evolution was laid during the dotcom era when our ability to measure previously unimaginable details became apparent. This led, eventually, to the era of Big Data in which we now wallow. We are not always quite sure what to do with the stuff. And, as often as not, we disregard the evidence, but no one gainsays its primacy.
It may be that with everyone an opinion leader, the value of others' thoughts has been discounted. Just give us the facts and we'll make up our own minds. The net, and our slavish embrace of mobile commerce, have made us less tolerant of inefficiency and more open to The Facts, wherever they may lead. The implication is that a deal is a deal and if it's cheaper at your site, I'm in. Which means, by extension, that if your assertion is backed by data that makes sense to the viewer, it carries more weight than does one that is merely being trumpeted by the biggest ego or loudest voice at the table.
For business and government this means that people may be inclined to support those policies and strategies that seem most likely to produce outcomes that are optimally logical for the well-being of whatever enterprise, institution or individual is touting them.
There are risks: data can be manipulated as easily as opinion. But if this trend holds, it may produce a more effective society and economy. What a concept. JL
Barry Ritholtz comments in The Big Picture:
Is the US becoming more of an empirically based society?
The early evidence across a variety of fields is in, and it appears to be yes — albeit rather slowly. I suspect this adaptation is going to accelerate rapidly over the next decade. A blog post is not where we can do a full blown study on this — that’s what academia is for. However, we can take a closer look at areas where data analysis and experimental observation make a difference.
Empirical evidence (aka empirical data, knowledge, experimentation) is a source of knowledge acquired by means of observation or experimentation, producing voluminous reams of data. We can look at the results of these experiments and draw conclusions based on the weight of the evidence.
What follows is a brief, intentionally ironic anecdotal look at the areas where empiricism is on the rise:
• Political forecasting: The big story of the 2012 elections was the rise of the data junkies, with Nate Silver being the most visible version. The squishy, narrative-driven data-free observations turned out to be little more than examples of confirmation bias -0- they simply failed.
• Climate Change: A funny thing keeps happening to a number of climate denialists — they have given up their opposition and have accepted the scientific consensus. Some have simply admitted they are funded by Oil and Coal companies. The reason for this: The alternative narrative simply lacked sufficient data to respond to an overwhelming set of published papers and data.
• Technology User Design: As Wired explained last year, some businesses guess how new products or services are going to be received by consumers. (Think “New Coke”). But web companies have the ability to quantify this process, and actually test users who are unknowingly moved to novel pages to test their reactions. This A/B testing has revolutionized a number of industries, including web interface design, online checkout carts, and even political fundraising.
• Economics and public policy: In their book This Time is Different, Reinhart & Rogoff looked a centuries of data about credit and other financial crises. To prod policy makers into becoming more data driven, they have made all of their statistical data available for download. This stands in stark contrast to the gut feel approach we have seen be deployed so disastrously over recent decades.
• Asset Management: Finance has thrown an enormous amount of analytical firepower at the filed of putting capital to work. From Quant investing to Venture Capital to simple investing, there has never been more statistical analyses of what works and what doesn’t than ever before. The old myths, heuristics and misleading assumptions are slowly falling away as we learn precisely what not to do. The biggest factor impacting investors is the behavioral elements, not our knowledge.
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Perhaps a worthwhile question we should ask ourselves: What narratives am I telling myself today? Is there any data set or analyses that can prevent me from fooling myself?
Empiricism will be moving more and more of the US economy forward. Will you profit from this, or will your loss be someone else’s gains?
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