Predicting the US 2016 Presidential Election : Will Nate Silver Make it Again ?


The signal and the noise



Who is Nate Silver ?

Nathaniel Read "Nate" Silver (born January 13, 1978) is an American statistician and writer who analyzes baseball and elections. He is currently the editor-in-chief of ESPN's FiveThirtyEight and a Special Correspondent for ABC News. 
Silver first gained public recognition for developing PECOTA, a system for forecasting the performance and career development of Major League Baseball players, which he sold to and then managed for Baseball Prospectus from 2003 to 2009.


After Silver successfully called the outcomes in 49 of the 50 states in the 2008 U.S. Presidential election, he was named one of The World's 100 Most Influential People by Time in 2009.
In 2010, the FiveThirtyEight blog was licensed for publication by The New York Times. In 2012 and 2013, FiveThirtyEight won Webby Awards as the "Best Political Blog" from the International Academy of Digital Arts and Sciences.

In the 2012 U.S Presidential election, Silver correctly predicted the winner of all 50 states and the District of Columbia.



Silver's book, The Signal and the Noise, was published in September 2012. It subsequently reached The New York Times best seller list for nonfiction, and was named by Amazon.com as the No. 1 best nonfiction book of 2012. 
The Signal and the Noise won the 2013 Phi Beta Kappa Award in Science. The book has been translated into nine languages: Chinese (separate editions in traditional and simplified characters), Czech, German, Italian, Polish, Portuguese, Spanish, Russian, and Romanian.






So , what is his call on this upcoming 2016 US Presidential Election ? 








Will the new FBI’s investigation into Hillary Clinton’s private server issue causing any harm and allowing Donald Trump to play the “catching up “ in next 7 days ? Yet to see , you may monitor the forecast from this web closely in next few days .


What about predicting the outcome in stock market ?


In Chapter 11 of his book , Nate Silver delicated this chapter to discuss about the challenge in predicting the market’s movement .

“ Chapter 11 : if you can’t Beat ‘Em …”

“ In 2009 , a year after the financial crisis had wrecked the global economy , American investors traded $8 million in stocks every second that the New York Stock Exchange was open for business. Over the course of the typical trading day, the volume grew to $185 billion, roughly as much as the economies of Nigeria , the Philippines or Ireland produce in entire year. 

Over the course of the whole of 2009 , more than $46 trillion in stocks were traded : four times more than the revenues of all the companies in Fortune 500 put together . This furious velocity of trading is something fairly new , 

In 1950s , the average share of common stock in An American company was held for about six years before being traded – consistent with the idea that stocks are for long term investment . By 2000s , the velocity of trading had increased roughly twelve fold. Instead of being held for six years , the same share of stock was traded after six months. “ wrote Nate.





The Two-Track Market


Under such velocity and frequency of trading , the whole stock market looks like a "giant  casino “ , hence make the prediction very challenging and seems impossible .


According to him : “ Some theorists have proposed that we should think of the stock market as constituting two processes in one. There is the signal track” , the stock market of the 1950s that we read about in textbooks. This is the market that prevails in the long run, with investors making relatively few trades , and prices well tied down to fundamental. It helps investors to plan for their retirement and helps companies capitalize themselves .


The there is the  fast track , the “noise track” , which is full of momentum trading , positive feedback, skewed incentive and herding behavior. Usually it is just a “rock-paper-scissors” game that does no real good to the broader economy- It is just a bunch of sweaty traders passing money around “.
In “The Signal and the Noise” Silver also investigates how predictions are made in a wide range of fields, including chess, baseball, weather forecasting, politics and earthquake analysis. He offers hopeful examples (baseball and weather predictions), but weighs the progress against a series of catastrophes that no one saw coming, such as the September 11 attacks, the global financial crisis and the earthquake and tsunami in Fukushima.

The Economist wrote: “In the spirit of Nassim Nicholas Taleb’s widely-read ‘The Black Swan,’ Mr. Silver asserts that humans are overconfident in their predictive abilities, that they struggle to think in probabilistic terms and build models that do not allow for uncertainty.”

The book makes both philosophical and technical recommendations. “Once we’re getting the big stuff right -- coming to a better understanding of probability and uncertainty; learning to recognize our biases; appreciating the value of diversity, incentives and experimentation -- we’ll have the luxury of worrying about the finer points of technique,” 


Silver argues that we have more information than we know what to do with, but relatively little of it is useful. “We think we want information when we really want knowledge,” he wrote.

We know that predicting stock market is hard and near to impossible but if we could predict the out-come of an important event which would swing the market like U.S Presidential Election , why wait ? We should be watching it closely !

Cheers !




“The signal is the truth. The noise is what distracts us from the truth.” by Nate Silver



Comments

  1. Hi STE
    Great post again!
    I am going to ask a stupid question:
    Why is there a lock (is that what it is?) on the book?

    TTI

    ReplyDelete
    Replies
    1. Hi TTI,
      Ops! Sorry,not a lock , that was just a bookmark my friend bought it from China,, :)
      I hope this will not cause you to spend money on Amazon again ,, haha,
      Cheers !

      Delete
  2. Nate Silver predicted early and often that Trump wouldn’t last long in the Republican presidential race. And he wasn’t alone: a lot of people said Trump would flame out over time. Pretty much everyone was saying it.

    What distinguished Nate Silver from everyone else was the confidence with which he was saying it. He was all but guaranteeing it. He operates in a world filled with mathematical models that had never before failed him. Then they failed him.

    He thinks in probabilities. And his mind is open to a range of potential outcomes before, during, and -- most important -- after he's made his forecast. Things might go this way, or they might go that way. He adjusts the odds of certain outcomes when new information arrives. It's the most effective way to think about the future.

    Let's see how his forecast will change over the next few days and lets hope that the recent news from FBI remains just noise.

    ReplyDelete
    Replies
    1. Hi Andy,
      Thanks for the comments, yah ! No matter how complicated of the algorithm modeling, it just a way to calculate the probability of certain outcome and will always have " margin of error " , no matter how small it is ,,,yup, let's see how things develop in next few days if the FBI's incident remain as noise or a real signal...:)
      Cheers!

      Delete
    2. Looks like almost all of the pollsters were wrong - including the predictions on the reactions of the stock market afterwards. Lucky me I did not trade yesterday. I certainly would have been on the wrong end of the trade.

      The weak performance of the pollsters confirms for me that humans are firstly not rational and secondly not honest.

      Nate Silver and his team - after confirming the probability at 80% the night before the election - quickly changed their forecasts in tandem with the events. Fair enough. But that also means that we can not derive any actionable measures from Forecasts without being prepared for the unexpected.

      And the election confirms again that the most influential and devastating events in history are, by definition, the least anticipated. Have you seen any "Black Swan" lately.

      Delete
  3. Hi Andy ,
    Yah ! almost all the pollsters and pundits got it wrong and very wrong... Even the Wall Street ,,, DJ swing from -800 plus ( future ) to end + ve of almost 300 points ,,, :o
    While things being settled down ,,, people seems starting to look at positive side that " mane his massive tax cut proposed might be good , spending on infrastructure might create jobs , less dependence on wall-street's view in drawing his policy as he doesn't owe any party for donation in his campaign,,, etc "
    Well, that' s politics and we will need to move on with real economic front,,, quoted today's article in The Business Time by Prof Philip Parker ,, " How will America cope ( with this new president-elect) ? My forecast is just fine , remember that we have previously elected movie actors, peanut farmers and rough riders to the presidency. "
    Hope it will turn out to be that way ! Cheers :-)

    ReplyDelete

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