The Cognitive Bias of Ed Yardeni Critics
I admire Barry Ritholtz’s enthusiasm for analyzing Street Research — not peer reviewed and often methodologically flawed. His critcism of Dr. Ed Yardeni’s New York Times comments, however, is both incorrect and more than a little unfair. I’ll cite specific errors, but first look at Barry’s argument:
One of the more astonishing things I’ve come across recently was an utterly disengenuous article in Sunday’s Times: Navigating the Fog in Jobs Data. The article is a discussion with (former Prudential) Strategist Dr. Ed Yardeni. It seems that he has been …
Here are some things that are specific errors in Barry’s post:
- Yardeni is correct in saying that the original employment report tells us little. It is subject to revisions because not all employers reply on time. Even after the final revision, it is a survey, not a complete count. The final revision (not known for two more months) has a huge error band. I described this for my readers here and here. I have not studied Yardeni’s statement that revisions are more likely upward during expansions. It would help explain how Barry wins his "under" bets! If Barry has counter evidence, he did not provide it.
- Barry throws out a figure of 9.4% unemployment using one of the several measures the BLS provides. Last month I challenged him and others using this ploy to provide a time series for comparison. I did the analysis for the one he cited last month from Liscio, showing that the rate was not high by historic standards and also detailing that part-time workers were doing so for non-economic reasons.
- The cognitive bias charge is uwarranted and unfair. It is not like Barry to report Street rumors about someone’s career. Let’s stick to the analysis. I think that Barry exhibits cognitive bias because he (and the Liscio folks) pore over each report looking for any deviation from economic perfection. A healthy economy will always exhibit sector shifts in employment. Construction was the last big thing and something else will be the next big thing. I described the phonemenon of not understanding "normal" data here.
Ed Yardeni is not responsible for the lead sentence that the Times reporter chose. In any case, the basic idea is a good one. The originally reported payroll number swings trillions of dollars in the market, while providing little actual insight.