Why predictions fail

If *only* we had included institutions in our prediction model

Over at the Why Nations Fail blog, Daron Acemoglu and James Robinson’s discuss a set of growth predictions made by Paul Rosenstein-Rodan, the father of  the Big Push model, illustrating just how wrong they were:

Acemoglu and Robinson argue that the these predictions were off primarily because the Big Push model ignored politics and institutions:

Of course, things didn’t quite work out that way. In fact, many of the economies about which Rosenstein-Rodan was bullish are not much richer today than they were in 1961. Liberia and Haiti’s economies contracted since then. Angola, Kenya, Nigeria and Uganda haven’t done so well either. We of course know that Afghanistan, India and Pakistan grew more slowly than South Korea, Taiwan, Thailand and Singapore. Argentina and Haiti were no match for Costa Rica, the Dominican Republic and Panama.

The main reason why Rosenstein-Rodan got it so wrong is because he completely ignored the role of institutions and politics.

It’s hard to disagree that Rosenstein-Rodan should have taken these into account – but are they the primary drivers? What about geography, natural resources, export commodity prices, health and the myriad other factors which might drive a country’s growth rate? Without a little more effort, the models lack of effectiveness doesn’t tell us anything about why it is ineffective. I understand that Acemoglu and Robinson consider institutions to be the chief determinant of everything since the beginning of time, but arguing that the Rosenstein-Rodan prediction is wrong because it ignored institutions is a little like arguing that a car missing all four wheels won’t drive because – damn it – it’s also missing four tires.

Slightly more disconcerting: A&J are only displaying a subset of predictions from Rodan’s original paper. Why? My guess is that eye-balling the full dataset doesn’t reveal as much. This calls our for a slightly more rigorous approach than pointing to a few bad predictions. Even better, does someone have the time to crunch the numbers and see if Rodan’s predictions are less useful than predictions being made today?

One thought on “Why predictions fail

  1. Lee

    April 11, 2012 at 9:56pm

    Easterly nails it here:

    “The book has two primary flaws. First, Messrs. Acemoglu and Robinson have dumbed down the material too much. (“The first president of the United States, George Washington,” we’re informed, “was also a successful general in the War of Independence.”) Second, they are overly reliant on anecdotes and don’t present more rigorous, statistics-based evidence to support their theories—probably a result of the dumbing-down impulse, since the authors’ own academic work is thoroughly based on just such evidence.”

    Oh the challenges of popularizing research.

    http://online.wsj.com/article/SB10001424052702304724404577293714016708378.html?mod=googlenews_wsj

Comments are closed.