Empiriceme · Figure · Adage / Folk Law

Stein's Law

If something cannot go on forever, it will stop.

Stein's law is a warning about extrapolation, formulated about US trade deficits. Unsustainable trends end whether or not anyone can say when, which makes "this cannot continue" a weak prediction.

In practice

  • A firm's costs have risen faster than its revenue for six years, and the trend ends whether or not anyone in the building can say in which quarter.
  • Its weakness is that it forecasts nothing: "this cannot continue" is compatible with continuing for another thirty years.
Subject
Economics & Incentives
Essay
Rules for choosing, and the paradoxes that humbled the theory

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