This helps a lot

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not backward!

Lies, Damn Lies, and Predictions

Oh man, not another election! Why do we have to choose our leaders? Isn’t that what we have the Supreme Court for?
— Homer Simpson

Nate Silver is now putting Barak Obama’s chance of reelection at around 85%, and he has been on the receiving end of considerable criticism from supporters of Mitt Romney. Some have criticized his statistical analysis by pointing out that he has a soft voice and he is not fat (wait, what? read for yourself – presumably the point is that Silver is gay and that gay people cannot be trusted with such manly pursuits as statistics), but the main point seems to be: if Romney wins the election then Silver and his models are completely discredited. (E.g. here.) This is like someone saying that a die has approximately a 83% probability of not turning a 2, and others saying, if I roll a die and it turns a 2, this whole “probability” thing that you speak of is discredited.

But still, when someone offers predictions in terms of probability, rather than simply stating that a certain outcome is more likely, how can we evaluate the quality of such predictions?

In the following let us assume that we have a sequence of binary events, and that each event $i$ has a probability $p_i$ of occurring as a $1$ and $1-p_i$ of occurring as $0$. A predictor gives out predicted probabilities $q_i$, and then events $E_i$ happen. Now what? How would we score the predictions? Equivalently, how would we fairly compensate the predictor?

A simple way to “score” the prediction is to say that for each event we have a “penalty” that is $|E_i - p_i|$, or a score that is $1- |E_i - p_i|$. For example, the prediction that the correct event happens with 100% probability gets a score of 1, but the prediction that the correct event happens with 85% probability gets a score of .85.

Unfortunately this scoring system is not “truthful,” that is, it does not encourage the predictor to tell us the true probabilities. For example suppose that a predictor has computed the probability of an event as 85% and is very confident in the accuracy of the model. Then, if he publishes the accurate prediction he is going to get a score of .85 with probability .85 and a score .15 with probability .15. So he is worse off than if he had published the prediction of the event happening with probability 100%, in which case the expected score is .85. In general, the scheme makes it always advantageous to round the probability to 0% or 100%.

Is there a truthful scoring system? I am not sure what the answer is.

If one is scoring multiple predictions of independent events, one can look at all the cases in which the prediction was, say, in the range of 80% to 90%, and see if indeed the event happened, say, a fraction between 75% and 95% of the times, and so on.

One disadvantage of this approach is that it seems to require a discretization of the probabilities, which seems like an arbitrary choice and one that could affect the final score quite substantially. Is there a more elegant way to score multiple independent events without resorting to discretization? Can it be proved to be truthful?

Another observation is that such an approach is still not entirely truthful if it is applied to events that happen sequentially. Indeed, suppose that we have a series of, say, 10 events for which we predicted a 60% probability of a 1, and the event 1 happened 7 out of 10 times. Now we have to make a prediction of a new event, for which our model predicts a 10% probability. We may then want to publish a 60% prediction, because this will help even out the “bucket” of 60% predictions.

I don’t think that there is any way around the previous problem, though it seems clear that it would affect only a small fraction of the predictions. (The complexity theorists among the readers may remember similar ideas being used in a paper of Feigenbaum and Fortnow.)

Surely the task of scoring predictions must have been studied in countless papers, and the answers to the above questions must be well known, although I am not sure what are the right keywords to use to search for such work. In computer science, there are a lot of interesting results about using expert advice, but they are all concerned with how you score your own way of picking which expert to trust rather than the experts themselves. (This means that the predictions of the experts are not affected by the scoring system, unlike the setting discussed in this post.)