Why the pundits are so often wrong

One of the more annoying aspects of modern life is the way we are subjected to the constant prognostications of various forecasters: the so-called experts who tell us what is going to happen — to the economy, in politics, in the world of technology, in fashion, and, it seems, just about anywhere else.

You can’t get away from these irritating nuisances. Turn on a news program on the television and you hear more about what is going to happen that what has just come about. The newspapers are the same: endless forecasts and speculations displace real news, let alone reasoned comment designed to help the reader understand the implications of current events.

That’s I applauded this brief article by Matthew Parris in the London Times newspaper (“The trick: forecast what happened yesterday”). As he says, “I suspect that economic forecasting owes more to a mirror held up to yesterday than a crystal ball held up for tomorrow. ”

The trouble seems to be that most external ‘commentators’ aren’t so much focusing on what’s right as what will sell: sell their article to the editor, sell their paper or program to the public. Only yesterday, someone in the media business moaned to me that we he is forced to publish is ‘what sells’, not what he thinks is interesting or what his readers should know.

Yet that same person also told me that his publication had lost more than half it’s readers in the past 12 months. What he read into this was illuminating: his take was that he wasn’t publishing ‘what sells’ — mostly simplistic, dumbed-down articles of handy hints. What I took away was the view that because he was publishing more stuff aimed at selling alone, there was less in his publication that anyone found worth reading. As the author of the blog ‘Stumbling and Mumbling’ writes in his comment on Matthew Paris’ article:

The buyers of economic forecasts want to be told that they have made the right decisions. As Montagu Norman allegedly said to an early Bank economist: “your job is not to tell us what we should do, but to explain why we’ve done what we have.”

Rear-casts

We are obsessed, as a society, with two things: handing out only what we believe — often wrongly — will be popular; and justifying ourselves afterwards afterwards.

The second point is most easily met by making ‘rear-casts’: statement posing as forecasts that serve to justify the past and imply that what happened then is what will happen next. In times of little change, they appear to work. When the unexpected arises (which is, by definition, impossible to forecast), the forecasters, who ought to be showing a little humility, simply ignore it and get on with forecasting that this new world is going to last for ever.

Why? Because, of course, it sells. As long as human being crave security and predictability in their world — neither of which is truly achievable — someone will be there to provide the illusion of it, for a price.

Risk management is properly a set of activities based on assuming that whatever can go wrong, will — then preparing against bad times without knowing precisely what they will be. In our modern world, it has become the domain of the forecaster, who guesses at the future and dresses up the guess in pseudo-scientific terms — then acts as if that guess is inevitable.

Why did we get into the mess of the ‘dot com’ boom and bust, the Enron debacle, and today’s sub-prime mortgage disaster? Because people forgot the basis of risk and jumped instead for comforting forecasts predicting that the good times would roll on without end.

At its heart, forecasting is no more than saying what goes up will, one day, come down — only no one knows when, or how far things will go in either direction.

Technorati Tags: economic forecasting, failure to predict problems, getting forecasts wrong, risk management, being caught off-guard, failed predictions

Related articles by Zemanta

• Go figure by Mike Butcher: Mail’s rise reopens questions about target audiences