The Perilous Task of Forecasting

The Wall Street Journal:

To get business right, finance chiefs need to be good forecasters. Yet research has shown that amateurs can actually be better than experts at predicting the future.

Jason Zweig, The Wall Street Journal’s investing columnist, sat down with Philip Tetlock, a professor at the University of Pennsylvania’s Wharton School and the co-author of “Superforecasting: The Art and Science of Prediction,” to explore why that is and what companies can learn from it.

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MR. TETLOCK: One reason is that experts sometimes know too much. I was talking once to John McLaughlin, former director of the CIA, about the end of the Cold War period, and he was remarking that the analysts who were slowest to recognize that East Germany was disintegrating were the people who had been on the case for 20 years.

It was the newbies coming in who got it pretty quickly. And there’s a lot of psychological evidence that attests to the power of preconceptions to grip us and make it hard for us to be timely belief updaters. So sometimes knowledge is actually an impediment. Another big factor is that there is a large amount of uncertainty in the world. So no matter how smart you are, it isn’t going to give you a lot of traction.
MR. ZWEIG: Because luck and randomness are such powerful forces?

MR. TETLOCK: Yeah. They aren’t totally dominant, but they’re powerful forces. And forecasters who don’t take them into account do so at their peril.

Read the whole story: The Wall Street Journal