Regime Change
A regime change is a structural shift in the environment that alters relationships and base rates, making past patterns less predictive.
Definition
A regime change is a structural shift in the world that changes how outcomes are generated. It can alter base rates, correlations, and what signals matter.
Examples
• A rule change that alters how often teams score.
• A policy change that changes the probability of an economic outcome.
• A platform rule update that changes settlement sources.
Why it matters
Regime changes can make backtests and historical calibration unreliable. Forecasters may need to reset priors and re-evaluate which benchmarks are appropriate.
Related
Regime change is closely connected to base rate shift, out of sample testing, and ongoing recalibration.