2026/07/30 by Karl T. Ulrich
Economics, Econometrics and Finance · #econ.GN #q-fin.EC #q-fin.GN
arxiv created 2026/07/30 · arxiv updated 2026/07/31
When do outcome records carry enough signal to support reliable inferences about skill? When they do not, what should evaluators substitute? The framework answering the first question characterizes any decision domain with two parameters: the noise reflected in each outcome and the effective number of independent outcomes that are available over an observation window. When domains are positioned in a two-dimensional space of noise versus number of outcomes, those in which capital, prestige, and political power are routinely allocated on the basis of realized outcomes (e.g., mutual fund management, venture capital, executive performance) fall in the region where outcome records contain too little signal to support reliable individual-level inferences. Evaluating actors when outcome records are insufficient can be done by adopting the populationlevel empirical validation methods long used in medicine: has the actor adopted the practices that, at the population level, are associated with better outcomes?