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Barry Ritholtz

Why Models Can Never Get Things Quite Right

Their downfall is the assumption that the future will be like the past.

This was predictable.

This was predictable.

Photographer: Nathan Howard/Bloomberg

The economy is frozen because of the coronavirus. In all likelihood, it can't fully reopen until we have proper testing and tracing, an effective vaccine or treatment, or population-wide immunity, none of which may ever happen. The total number of infections and deaths we expect this year and next is still a guess. Epidemiologists have modeled various probabilities, with a wide range of possible outcomes.

Yet, we have placed a great deal of faith in those models and many others because so much of our lives is guided by them. We don't live in objective reality; in truth, we function in a model of our own construction. Our brains generate mental outlines, continually filling in missing information to form a picture that we can discern and identify. It is an evolutionary trait that has allowed us to thrive in a world where for a very long time we were as much prey as hunter.