The precision and usefulness of economic forecasting can be considerably improved

New York, USA, November 5th, 2026, FinanceWire

An exploration of American economist Dennis Shen’s goal to incentivize more precise forecasting and more efficient capital markets.

Dennis Shen announces his assessment of the shortcomings in modern economics, highlighting economic forecasting as a major challenge for the profession. His analysis examines the difficulties economists face in accurately predicting economic developments and evaluates the forecasting performance of leading global economic institutions, raising questions about the reliability of their projections despite their established reputations.

Where do the shortcomings in modern economics lie. One significant flaw may be in forecasting – an area that the profession has consistently struggled to do accurately. When one examines the forecast assessments of the leading global economic institutions, it becomes evident that their reliability may not live up to the institutions’ esteemed reputations.

In fact, expert economic forecasts may not necessarily be any more precise than simply taking a random stab at things. Such a notion was famously illustrated by the University of Pennsylvania researcher Philip E. Tetlock, who likened an industry of economic and financial forecasters to chimpanzees throwing darts at a dartboard. While such an analogy might be callous and slightly exaggerated, Tetlock's evaluation of more than 30,000 projections from the 1980s and 1990s did reveal professional forecasters to regrettably only just outperform such dart-throwing chimps.

The issue of imprecise judgment especially applies to long-term forecasting, where the economics industry appears particularly in the dark. As an example, the International Monetary Fund has a history of consistently failing to foresee economic downturns – even when one has been on its proverbial doorsteps. Resultantly, it has rarely provided the much-needed early warning signals required for the global community. This has consequences for human lives in just how equipped governments may or may not be for crises that inevitably emerge.

Nevertheless, the good news is that such a state of affairs is certainly not unchangeable. Economic and political forecasting can be made considerably more dependable, provided that the economics community and government care enough to place a greater emphasis on judgment precision and develop the necessary institutional infrastructure selecting precise analysts and systematically rewarding talent for producing accurate diagnoses.

Shortcoming of Economics

Much of economic assessment relies partially on guesswork and may lack the concrete laws and identities one sees in the physical sciences. Unlike the natural sciences, economic laws and those of other social sciences appear frequently designed to be broken – in view of an inherent unpredictability of human and social behavior that such rules may depend on. Rather than learning from past mistakes and demonstrating progress, the field displays rather a frustrating tendency to repeat the same mistakes.

But in a world in which sound economic judgment is so crucial for good governance, why is it accepted that economic diagnostics remain so irrational, imprecise and short-sighted?

An Infrastructure for Anchoring Better Judgment

What is needed is the development of a fundamental infrastructure that encourages analysts to pursue precision in their judgments while penalizing imprecision. Such a basic performance-based system may appear obvious for any professional line of work, but such a system of checks and balances and accountability remains, rather unexpectedly, effectively entirely absent from economic and financial forecasting. The field operates rather under an 'anything goes' ethos frequently, in which the accuracy of analysts' opinions and predictions appears irrelevant – despite the possible consequences for governance and financial stability.

There is an analogy of an alternate domain of medicine in which the accuracy of doctors' diagnoses and prescriptions of patients’ ills may prove vital for a given doctor’s professional standing, credibility and career longevity. By contrast, economic analysts and executives can confidently make questionable predictions and offer wrong policy prescriptions with apparent impunity absent facing consequences or seemingly ever admitting their failures. Organizations fail to recognize the diagnostic accuracy of accurate analysts and ignore disciplining analysts and executives who routinely deliver wrong judgments or recommendations. Correct economic predictions are not necessarily prioritized, even for research groups whose sole responsibility may lie in the sale of such financial assessments and forecasts. Even for such organizations, style trumps substance.

There is, additionally, a counterproductive norm in economics whereby the more well-known an expert or institution is, the more the press seeks their opinions – irrespective of their track record of reliability. Paradoxically, renowned economic experts often perform poorer on precision, according to the research of Tetlock. Such experts have frequently concentrated on building personal brands rather than necessarily on honing wisdom. Such a preference of the press for big names over sound advice may lie at the heart of the problem.

The prevalence of inaccurate economic information and advice contributes to significant inefficiencies in financial markets, as capital-market pricing is resultantly based on short-sighted economic predictions from unreliable persons or institutions, facilitating repeated financial-system bubbles and the disruptive corrections when false underlying assumptions are finally revealed.

A Path Ahead

To design a better economic-forecasting community, institutions must undertake a reimagining and rethinking of incentive structures to bring on board and support analysts who consistently provide more accurate predictions and sound policy advice, even if such persons may be reserved. Such a basic step is crucial for filling a significant gap in an existing infrastructure, which may bolster the reliability of judgment and help distinguish valuable analysis from the sea of inaccurate and misleading information. People must know that their careers hinge on an attention to the quality of the content they produce.

Here, structures ought to be designed to financially compensate economic forecasting groups who display precision in their opinions and recommendations. Initiatives such as the Good Judgment Open represent a small even if important step in such a direction. Additionally, while several organizations currently present forecasting awards and forms of public recognition for outstanding economic evaluation, such efforts remain overly limited and need to be better funded and expanded significantly. There is a need for a meaningfully more comprehensive approach, such as placing greater attention on economists having a proven record of accurate predictions, as per so-called "Superforecasters" or those displaying neurodivergence. Such an approach contrasts with an existing practice of listening to those who may speak the most confidently, those who may be well connected or those who may have the most recognition.

A greater precision of economic assessments holds the potential of enhancing the stability and growth of capital markets and improving economic governance, making a very significant difference globally. A broader movement towards the design of a better economics is something we ought to all hope for.

About Dennis Shen

A macroeconomist based in Berlin, Germany, Dennis Shen is a strong and passionate believer in strengthening the precision of economic and financial judgment and forecasting – for anchoring better public policy outcomes and supporting greater efficiency of global capital markets.

Photographer: Catarina Heeckt

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