You can build a statistical model and that’s all well and good, but if you’re dealing with a new type of financial instrument, for example, or a new type of situation — then the choices you’re making are pretty arbitrary in a lot of respects. You have a lot of choices when you’re designing the model about what assumptions to make. For example, the rating agencies assume basically that housing prices would behave as they had over the previous two decades, during which time there had always been steady or rising housing prices. They could have looked, for example, at what happened during the Japanese real estate bubble, where you had a big crash and having diversified apartments all over Tokyo would not have helped you with that when everything was sinking — so they made some very optimistic assumptions that, not coincidentally, happened to help them give these securities better ratings and make more money.

—  Nate Silver on the bias of statistical models

How do you sift through the information noise?

“According to IBM, 90 percent of the data in the world was created within the last two years. Now not all that data is very useful though, it might include YouTube videos of people’s cats and text messages sent between teenage girls.” — Nate Silver

For the record, we’re not saying YouTube videos of people’s cats are not useful (I mean, come on).

But in today’s interview with Nate Silver, he mentioned that in the current age of unlimited information, the real skill is learning to pick out what’s useful from all the information noise. 

It got me thinking: How do you sift through the information noise?

I’ll start: One thing I find helpful is reading longer, more contextual essays or pieces on current events that are published a week, or even two weeks after the event has happened.  I find a little distance and perspective goes a long way.

How about you?

Heidi

“The amount of meaningful information relative to the overall amount information is declining. We’re not that much smarter than we used to be, even though we have much more information — and that means the real skill now is learning how to pick out the useful information from all this noise.” - Nate Silver

In The Signal and the Noise, Silver looks at analysts in many fields, from weather to the economy to national security, and concludes that those who succeed at spotting new trends and understanding the future are careful to acknowledge what they don’t know — and examine the assumptions that underlie their thinking. Humility, he says, is critical.

— via Fresh Air interview with Nate Silver: ‘Signal’ And ‘Noise’: Prediction As Art And Science