STREET DOGS

Whenever a shocking event occurs we rush to find the wise few who saw it coming, anoint them oracles and ask them to reveal what will come next. It’s an understandable reaction to uncertainty. It’s also a failure of the elementary scepticism that we should possess.

For big events like presidential elections, terrorist attacks and stock market crashes, the number of observers making forecasts is always large, with varied forecasts.

In those circumstances, the mere fact that someone correctly predicted something means little. To take it as proof that the forecaster possesses deep insight and knows what’s coming next makes as much sense as asking today’s lottery winner to reveal next week’s winning numbers.

When it comes to predictions and forecasting, the challenge is to separate the lucky from the skilled — that requires statistics.

A big problem here is vague language. When some pundit says something “could” or “may” happen, they are quite literally saying it may or may not happen. When it comes to forecasting, vague language is far more common than precise, scorable terms.

Another barrier to creating reliable track records is our tendency to remember hits and forget misses. In the first half of 2008, when the prices of oil and other commodities were soaring, there were countless stories about “peak oil” and the coming “age of scarcity”. Within several years — certainly by 2015, when the price of oil collapsed — these forecasts had clearly failed. But few looked back. We seldom do.

Remember when the eurozone was going to collapse? The China asset bubble would burst? Quantitative easing would cause hyperinflation? All these forecasts got huge play at the time and have since slipped out of memory.

Adapted from an article by Dan Gardner at Slate.com

Michel Pireu (pireum@streetdogs.co.za)