In order to gain insight into the future state of an economy, many economists refer to a variety of consumer and business surveys. Randomly selected consumers and businessmen are asked to provide their views about where the economy is heading. Thus if a survey shows that the majority of the surveyed express optimism it is regarded as good news for the economy. Conversely, if the majority of the surveyed are pessimistic it is taken as a bad omen for future economic activity.
But, is it valid to suggest that surveys can tell us where the economy is heading? Moreover, why should we regard an opinion supported by a large percentage of people as any more credible than the view of a particular individual?
It would appear that the knowledge regarding future economic conditions is dispersed. The chances of any one particular individual obtaining an accurate picture of the economy are thus very low. In addition, it is held that a large group of people are likely to have more information than an individual.
Hence, the logic underlying consumer and business surveys is that a large group of people selected randomly has a high likelihood of securing an accurate picture of future economic conditions.
It is quite possible that a group of people will have in their possession a greater amount of information than any given individual. However, more information does not necessarily mean a more accurate knowledge of the future.
In order to ascertain the facts of reality i.e. to separate the wheat from the chaff, the information must be processed by means of a theoretical framework.
Whether a forecast “makes sense” is determined not only by the amount of information available but also whether a theory, or a thinking process, is in tune with the facts of reality.
…click on the above link to read the rest of the article…
