Ep76 “How Should You Deal with Uncertainty in Today's World?” With Nick Bloom

Why It Matters

Understanding divergent uncertainty signals helps firms calibrate risk, allocate capital, and navigate policy volatility more effectively.

Key Takeaways

• Different uncertainty metrics—GDP, VIX, text—often diverge significantly from each other.
• Text‑based indices surged during Trump era, outpacing market volatility.
• Stock market volatility reflects immediate expectations, but misses long‑run risks.
• Local newspaper uncertainty index remained stable, highlighting media bias effects.
• Combining multiple measures offers richer insight for corporate decision‑making.

Summary

The All Else Equal podcast episode features Stanford economist Nick Bloom discussing how to measure economic uncertainty and why the choice of metric matters for businesses and policymakers.

Bloom outlines three classic approaches—GDP growth volatility, financial market volatility such as the VIX, and text‑based indices derived from newspaper language. He notes that while the VIX provides a real‑time, forward‑looking gauge of market expectations, it captures mainly short‑term earnings risk and is weighted toward certain sectors. Text‑based measures, built by scraping mentions of “uncertainty” in major outlets, have exploded since the Trump administration, often diverging from both the VIX and traditional surveys.

Bloom cites the contrast between a national “Economic Policy Uncertainty” index that jumped dramatically and a parallel index using 2,000 local papers that stayed flat, suggesting media bias influences headline numbers. He also observes that markets react strongly to negative shocks but may ignore long‑run political or geopolitical risks that newspapers flag.

The episode’s takeaway for executives is to triangulate across multiple uncertainty gauges rather than rely on a single source. Doing so can improve investment timing, supply‑chain planning, and strategic risk assessments in an era of rapid political and technological change.

Original Description

What do measures of uncertainty tell us about the state of the economy and how should firms and households use those measurements to inform decision-making? Hosts and finance professors Jonathan Berk and Jules van Binsbergen are joined by returning guest Nick Bloom, professor of economics at Stanford University, whose research on the causes and consequences of uncertainty helped build the Economic Policy Uncertainty Index.

In the discussion, they cover the various ways to measure uncertainty including the VIX and text-based methods. Bloom explains how the Economic Policy Uncertainty Index works, why discrepancies can sometimes exist between uncertainty measurements, and how these uncertainty indices can help inform better business decision-making.

Submit your questions to the show here: https://bit.ly/AllElseEqual

Find All Else Equal on the web: https://lauder.wharton.upenn.edu/allelse/