Is it immoral for pundits/bloggers/journalists to make forecasts about things in which they have no stake?

This is the argument laid out in a recent EconTalk podcast with Russ Roberts and Nassim Taleb most recently author of Antifragile: Things That Gain from Disorder. This idea has wide-ranging implications for financial journalism and the investment blogosphere. Here is an excerpt from their discussion:

Taleb: If it’s incorrect I should be harmed by it. So, if I make a forecast, if someone asks me for my opinion, it is immoral for me to say, well, the market is going up or the market is going down or this will happen, unless I stand to lose on that advice. Because people take risks based on other people’s advice. You see? This is where it’s immoral. This is why skin in the game is very generalized to daily life. I cannot tell you, well, this is good, unless I’ve tasted it. If there is risk. If there is no harm, then who cares?

Roberts: We all understand it’s immoral to review a book you haven’t read.

Taleb: Completely.

Roberts: And so to make a prediction about an event that you have no stake in has a similar immorality to it.

Taleb: Depends on how much harm you can cause.

So while it may be immoral to forecast events in which one has no stake, what ultimately matters is whether there is some potential measure of harm. In the investing world it is almost certainly the case that if someone buys (or sells) a security based on a forecast potential harm does exist.

Unfortunately this problem of impact-free forecasts is not a new one to the world of finance. Much of what wee see, hear and read these days is forecasts in one form or another. Barry Ritholtz in a vintage post talked about the “folly of forecasting.” The danger as Ritholtz notes is that investors can easily get waylaid by these forecasts. He writes:

Unfortunately, investors all too often give these “predictions” in print or on TV far more weight than they should. It’s very easy for a confident-sounding analyst, fund manager or professor to say something on TV that can throw off the best laid plans of investors.

Our investment plans are fragile to begin with, in large part due to our tendency to abandon our plans at the first hint of adversity. Following the forecasts of pundits who have no stake in their outcomes is a sure way to get taken off track. When you invest your skin is most definitely in the game. It is therefore incumbent on all investors to take stock of who they listen to and why.

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