2 - WHY YOU CAN'T BELIEVE PREDICTIONS

"Why You Can't Believe Predictions" is the title of an article we recommend by Pat Regnier in the July issue of Money magazine. The author makes some interesting and useful points with which we concur, including:

1) Experts make a lot of mistakes when forecasting, but that doesn't mean you should never listen to experts. It means you should listen in a new way. (More on that below.)

2) The process of developing a forecast is a useful exercise, even if the forecast itself turns out not to be accurate.

THE PREDICTION ADDICTION

One reason experts get away with dubious results, writes Regnier, is that we let them. Our craving for predictions seems to be more deeply entrenched than any innate sense of skepticism. But the prediction bug is also bound up with a desire to control our fate. (On this point the story of Kenneth Arrow is related: as an Army weather forecaster during World War II, his predictions were often wrong. His colleagues alerted the higher-ups to his poor track record. "The Commanding General is well aware that the forecasts are no good," came the reply. "However, he needs them for planning purposes.")

WHY PREDICTIONS FAIL

Philip Tetlock, UC Berkeley business school professor and author of Expert Political Judgement, has been surveying experts since the 1980s. He finds they do no better making predictions in their fields of expertise than do amateurs. Some do significantly worse. How can this be so?

Experts who peer into the future face three daunting challenges, says Regnier:

* Change comes from nowhere (Can you really be expected to expect the unexpected?)

* Competition changes the game (Expert forecasters not only have to be right, they have to find a reason everyone else will be proved wrong.)

* We're good at fooling ourselves (Our brains love to detect patterns, even when they're not there; forecasters will often unconsciously select some facts and ignore others in order to construct a better tale.)

But the answer is not to ignore all experts. The answer to figure out which to listen to, and how to interpret and utilize their predictions.

HOW TD LISTEN TD EXPERTS

Why are some forecasters more accurate than others? According to Tetlock, it is not because of what they think but of how they think. Tetlock divides experts into hedgehogs (those who know one big thing), and foxes (those who know many little things). He has found that, overall, fox-like thinkers are the more accurate forecasters. This is because they take information from many sources, including those they disagree with, and incorporate it into their thinking.

A hedgehog-like thinker will make more extreme predictions and tends to filter information through a strong worldview. A fox-like thinker is good at weighing diverse points of view, is comfortable with ambiguity and avoids extreme positions. Ironically, though, it is often hedgehogs that command the most attention and dominate the debate. After all, an outrageous, outlandish forecast is a lot more interesting, sexier and exciting to contemplate than one that uses language like "but," "however" and "on the other hand."

The answer isn't simply to ignore hedgehogs and follow a fox, though. Tetlock's data show that foxes are pretty darn fallible too. But the fox's open approach isn't a bad model of how we can all start to improve our judgment. Indeed, notes Regnier, there's growing evidence that combining a range of forecasts, even if they're extreme and hedgehog-like, is usually far better than listening to just one. Researchers at the Federal Reserve Bank of Atlanta, for example, tracked the accuracy of economists' predictions since 1986 and found that no single expert was as reliable as the average of them all.

From the example of the best thinkers, you can actually learn how to think about your own future more clearly. For starters, you can diversify your thinking and make sure to incorporate many views in making your decisions. One test of a good forecaster is the ability to describe opposing views - in other words, to explain why their forecast may turn out to be wrong. More broadly, you can use expert opinion in three important ways:

* to point out risks or opportunities you hadn't thought of before

* to keep from getting carried away with one, big, single notion (no matter how true)

* to keep you from overreacting to unanticipated events

In other words, don't be like a hedgehog, but do hedge your bets. That's a valuable idea and lesson - and we're sure of it!

© 2006 FutureScan Provided by ProQuest LLC. All Rights Reserved.