This is the most predictive time of the year
To listen to the audio voice version of this article, click here.
By now, you may be as tired of reading my complaints about predictions as I am Write themTherefore, I will no longer look back on last year’s terrible predictions as usual, but make some constructive suggestions to better think about the inherently unknowable future.
1. Start with a few Simple rulesFor Wall Street investment and economic modelers, this includes: a) sharing the past performance of the model; b) acknowledging the unknown variables faced by the model; c) acknowledging any known biases and the possibility of unknown biases. Once you solve this problem, you can at least sincerely work hard to “shape the future.”
2. Think in terms of probability (not outcome). I like the approach taken by Jim Reid of Deutsche Bank (see picture above). He surveyed his customers and asked them what risks they thought they might face in the coming year.
Of course, the usual prejudices are inherent in any investigation. A year ago, the first 3 concerns were all related to the pandemic (for example, recent deviations): virus mutation/evasion of vaccines (38%); Vaxx side effects (36%); Vaxx rejection hindered recovery (34%). The bursting of the technology bubble ranked No. 4 at 26%. And very few people have inflation (22%), ranking 6th on the list as a high threat. The key point is that not only do we not know what is the most important or least important, but we often don’t know what might become the biggest story in a day/month/year.
3. Stop investing based on forecasts: The biggest risk investors face is not that predictions will go wrong-we know they will go wrong. This is the tendency of investors to combine their forecasts and manage their investment portfolios accordingly. They no longer pay attention to the world of opportunities and risks, but become confirmation bias machines, looking for content that matches their predictions.This is a terrible way to manage your portfolio and put options Self-over-profit investment.
4. Can we stop “Uncertainty” nonsense? The future is always uncertain. Whenever you hear this sentence, you should automatically translate it into: “We are really worried about what might happen. The discussion on “uncertainty” is still far away More information about the speaker Than they are about the future.
5. Who is usually right? Pay attention to those who have a way of thinking about the unknown.For example, the team led by Professor Philip Tetlock in Decision Lab & Wharton School of Business It has become a science by improving the process behind forecasting. “The strange thing in the real world is how comfortable we are in making very powerful factual statements,” said Tetlock, who turned out to be wrong. You claim to know that the future is about “how the world will unfold in another universe you cannot experience, you can only use your imagination.”
Maybe later (or not) discuss this more. ..
Forecaster rules (April 8, 2019)
Uncertainty is nothing new (July 14, 2012)
Uncertainty myth (November 10, 2010)
Do you want to be right, or do you want to make money? (October 6, 2010)