The Probability Conflation: A Reply

TL;DR

This paper critiques expert judgment and forecasting methods for underestimating tail risks, highlighting a fundamental gap between tail expectations and probabilities, and introduces new insights into this discrepancy.

Contribution

It reveals a significant divergence between tail expectation properties and probabilities, challenging existing forecasting approaches and emphasizing the need for revised risk assessment methods.

Findings

Expert judgment underestimates tail risk

Forecasting tournaments are incompatible with tail risk methods

A new gap between tail expectation and probability properties is demonstrated

Abstract

We respond to Tetlock et al. (2022) showing 1) how expert judgment fails to reflect tail risk, 2) the lack of compatibility between forecasting tournaments and tail risk assessment methods (such as extreme value theory). More importantly, we communicate a new result showing a greater gap between the properties of tail expectation and those of the corresponding probability.