A0690
Title: Quantifying uncertainty: A new era of measurement through large language models
Authors: Simon Stalder - University of Lugano (Switzerland) [presenting]
Francesco Audrino - University of St Gallen (Switzerland)
Jessica Gentner - University of St Gallen (Switzerland)
Abstract: The aim is to present an innovative method for measuring uncertainty using large language models (LLMs), offering enhanced precision and contextual sensitivity compared to the conventional methods used to construct prominent uncertainty indices. By analyzing newspaper texts with state-of-the-art LLMs, the approach captures nuances often missed by conventional methods. Indices are developed for various types of uncertainty, including geopolitical risk, economic policy, monetary policy, and financial market uncertainty. Findings show that shocks to these LLM-based indices exhibit stronger associations with macroeconomic variables, shifts in investor behavior, and asset return variations than conventional indices, underscoring their potential for more accurately reflecting uncertainty.
