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 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? 

image credit to fivethirtyeight.com

image credit to fivethirtyeight.com

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 the next few days.

What about predicting the outcome in the stock market?

In Chapter 11 of his book, Nate Silver dedicated this chapter to discuss 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 an 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 the 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. During the 2000s, the velocity of trading had increased roughly twelvefold. Instead of being held for six years, the same share of stock was traded after six months. “ wrote Nate.

image credit to books from the signal and the noise

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.

Then there is the  fast track, the “noise track”, which is full of momentum trading, positive feedback, skewed incentive and herding behaviour. 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 the stock market is hard and near to impossible but if we could predict the outcome of an important event which would swing the market like U.S Presidential Election, why wait? We should be watching it closely!

Cheers!

Quote Of The Day :

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