INSIGHTS: The Inevitable Baggage We Display

Dean LeBaron

Until the point at which investment models began melting, too many investment practitioners operated within a myopic belief system that failed to contemplate certain fundamentals that are rigorously observed in other scientific disciplines. Flaws crept into our research under various headings of convenient simplification, behavioral finance, and statistical tools. Biases influenced our work leading to conclusions that, in retrospect, should logically have been suspect. We are writing a new chapter of economic history where the future will, quite likely, be unlike anything we can remember from the past. We can no longer assume that the best forecast of the future is the present condition; that autocorrelation is the rule of the day; and that, of course, the future repeats the past. We must recognize our biases and understand their influence on our work.