You Would Think

*/By Rick Nason, PhD, CFA
Partner, RSD Solutions Inc./*

*/Follow Rick Nason on Twitter/* [1]

*/Follow RSD Solutions on Twitter/* [2]

My wife has many lovely qualities and is a very smart woman.  An economist
however she is not.  Therefore I was somewhat amused when after listening to
the report of how Statistics Canada totally botched the July Jobs report –
a key economic indicator.  When the report was initially released the
announcement was that Canada had added a measly 200 jobs.  The market
reacted to the totally unexpected number.  It subsequently turned out that
the real number (after fixing computer and human error) was a plus 41,700
jobs.  In an economy the size of Canada's that is a major difference.

When my wife was listening to this on the news she turned to me and said
"you would think that someone with some common sense would have caught
that".

Yes, you naturally would think that at first blush, but it is all too easy to
see why it would not get caught.

Firstly if a number comes out of a black box we sometimes erroneously assume
it must be correct.  Most people reporting economic numbers (or risk
numbers) do not have any clue as to how to actually calculate the numbers by
hand.  We rely on the computers and in the process lose an intuitive
"feel" for the numbers.

Secondly the emphasis these days is on people who are university educated
rather than market educated.  As a University Professor I am not going to
knock a University education, but even I will acknowledge that a University
education should only be the start of your real education.  Degrees and
certification do not and cannot replace market experience.

All too often these days, the people calculating the numbers have no idea how
to interpret them or develop a "feel" for them.  Likewise, the people
who use and understand the numbers, all too often do not have an idea of how
to calculate them.  This is true in economics and it is especially true in
risk management.

Therefore, unfortunately it is all too easy to see how such an embarrassing
mistake could occur.  But it does make you think …


[1] https://twitter.com/rnason_dal
[2] https://twitter.com/rsdsolutions