Does this really make sense?  Should an investor take action based upon public perceptions of economic statistics -- throwing out the opinions of experts?

The Public in Action

To consider the wisdom of betting on the public, let us consider their track record.  We'll have more to say about this in future articles, but for now let us go to a source highlighted by Barry, Michael Shermer.  (We could cite our past articles on the blunders by individual investors, but for today, let us stick with Barry.)

In Shermer's book, Why People Believe Weird Things:  Pseudoscience, Superstition, and Other Confusions of Our Time, the author, the editor of Skeptic, (now on our list of featured readings) writes as follows:

If we are living in the Age of Science, then why do so many pseudo-scientific and non-scientific beliefs abound?...New Age ideas and nonsense of all sorts have penetrated every nook and cranny of both popular and high culture.

He goes on to cite a Gallup poll showing that 52% believe in Astrology, 46% in ESP, 19% in witches, 22% that aliens have landed on earth, 41% that humans and dinosaurs lived simultaneously, 65% belief in Noah's flood, and 67% who have had a psychic experience.  42% think they communicate with the dead.

Shall we bet with the public?

Real Life Applications

One application we know about is the world of tournament bridge, where those who have a sound theory and understand odds routinely beat those who do not.  We suppose this is the same in mind sports like chess.

Another application is poker, where the popular conception loses to the expert on a daily basis.  The expert welcomes those with little background or knowledge.

In other casino games, they send a limo for those with a "system."

Is economics different?

What about the Economy?  And the stock market?

How should we interpret economic data?  Shermer has a useful suggestion:

Science is progressive because its paradigms depend upon the cumulative knowledge gained through experimentation, corroboration, and falsification.  

The key point is that real scientists reveal their theories and data, inviting the criticism and tests of others.  Anyone not offering findings for peer review and analysis is suspect.

The pseudo-science of those criticizing economic data relies on sources that have no peer review.  It is something to think about.

Our Take

There are several easy ways of pandering to public perceptions about the economy, government actions, and stocks.

• Those who have no real economic credentials gain from disparaging those who do.

• Those who have never actually developed econometric models -- or any models -- gain from acting as if these models have no value.

• Those who have no government experience gain from simplistic interpretations (That is a model!).

• Those who start with a world view, and then criticize any inconsistent data, can find support for that perception.

The stock market offers the chance for those who can identify the real experts to make easy money.  Most often, this happens when sentiment is at a bullish or bearish extreme, not supported by reality.

One of our missions is to identify such points.  For now, there is a key question:

When experts and the general public disagree, how do you vote -- with your money?