A beaufort scale of predictability

Abstract

This paper defines a Beaufort Predictability Index, analogous to the Beaufort Wind Force Scale, intended to assist analysts in sizing up statistical prediction problems, specifically in connectionwith financial risk management but havingwider applicability. For background we outline the career of Francis Beaufort and the genesis of his Wind Force Scale. We then describe the various versions of probability that are relevant to prediction, from axiomatic assignment of probability to Knightian Uncertainty, and discuss the case of weather forecasting and attendant statistical methods. Mandelbrot’s ‘Seven States of Randomness’ are also presented in brief outline. On the basis of this background we present a definition of an 11-point Predictability Index. Examples of application are given.