Previously I had said this about John Fraser’s calling out Sydney’s house price bubble:
I now realise, courtesy of an article on page 4 of AFR, Friday June 5, ‘How do you measure a housing bubble’, that I should have reflected more critically on Fraser’s words:
Australia’s housing bubble debate inflated when policymakers appeared in front of senators to offer their views on the current state of property prices.
What we learnt is that the most senior financial minds have diverse ways to identify real-estate excess. New Treasury secretary John Fraser apparently uses the TV guide, concluding the number of renovation reality shows is evidence of a Sydney property bubble …
[Economist Nigel Stapledon] likened the notion that the prevalence of renovation shows on free-to-air TV pointed towards a bubble, to taking stock tips from a taxi driver.
Well spotted that journalist.
My mistake – motivated reasoning and belief preservation. Yes, so frustrated am I with the land-price situation in Sydney, and in Australia more generally, and the lack of official recognition of the disaster that it is, that I jumped on Fraser’s words with more glee than rational consideration. Even the best of us, sometimes, …
Fraser’s mistake – the informal fallacy of the Law of Small Numbers.
Stapledon’s mistake – a poorly-worded analogy. I think what he really meant to say was that Fraser’s making a judgement on the basis of home reno shows on telly, was like Joe Kennedy’s making a judgement about overvaluation of the stock market based on having his shoe-shine boy talk to him about shares.
All is not lost. We can learn from this. What I’ll explore in a future post – I don’t know when it will be ready, but I’ll begin preparing it – is when is new information significant? What is the tipping point? When exactly might a person be justified, having seen a home reno show, in concluding that the property market is unarguably in a bubble?
Bayesian updating FTW!