Friday, January 06, 2012

Can Internet Search Predict What's Next?

Apparently, yes. A study posted on the Liberty Street Economics blog (Forecasting with Internet Search Data) finds that "Internet search data can forecast the content of some economic data releases."

Because most Americans (nearly 80 percent) are on the Internet, their search behavior (16 billion Internet searches per month) can be used as a predictor of their behavior, say the researchers. This is a nascent field of study, but the preliminary results bode well for the development of new ways to spot trends. The researchers cite the example of more people searching for information about automobiles, which may precede an increase in car sales.

A number of studies cited in the Liberty Street blog post show that search analysis can accurately predict financial trends. One cited study found that "searches for a firm's most popular products are better than analyst forecasts at predicting earnings surprises and the subsequent market reaction."

While the blog post focuses primarily on spotting economic trends, Internet search analysis is likely to be an even better predictor of more slowly evolving demographic trends. Home buying, marrying, moving, having children--all are likely to be preceded by billions of Internet searches, and the trends in those searches are likely to become a crystal ball that can tell us what's next.

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