The Signal and the Noise: Why So Many Predictions Fail-but Some Don't

by Nate Silver

At one point during the dot-com boom, the market value of technology companies accounted for about 35 percent of the value of all stocks in the United States,41 implying they would soon come to represent more than a third of private-sector profits. What’s interesting is that the technology itself has in some ways exceeded our expectations. Can you imagine what an investor in 2000 would have done if you had shown her an iPad? And told her that, within ten years, she could use it to browse the Internet on an airplane flying 35,000 feet over Missouri and make a Skype call* to her family in Hong Kong? She would have bid Apple stock up to infinity. Nevertheless, ten years later, in 2010, technology companies accounted for only about 7 percent of economic activity.42 For every Apple, there were dozens of companies like Pets.com that went broke. Investors were behaving as though every company would be a winner, that they wouldn’t have to outcompete each other, leading to an utterly unrealistic assumption about the potential profits available to the industry as a whole.