On single point forecasts for fat-tailed variables

Int J Forecast. 2020 Oct 20. doi: 10.1016/j.ijforecast.2020.08.008. Online ahead of print.


We discuss common errors and fallacies when using naive "evidence based" empiricism and point forecasts for fat-tailed variables, as well as the insufficiency of using naive first-order scientific methods for tail risk management. We use the COVID-19 pandemic as the background for the discussion and as an example of a phenomenon characterized by a multiplicative nature, and what mitigating policies must result from the statistical properties and associated risks. In doing so, we also respond to the points raised by Ioannidis et al. (2020).

Keywords: COVID-19; Debate; Evidence-based science; Forecasting; Risk fallacies; Tail risk.