Thursday, December 30, 2010

Predicting the Past?

'Tis the season for predictions. ‘Tis the time of the year when we shine up the old crystal ball and look straight into the future.

When we return from their visionary excursion we take pleasure in reporting that we have seen the future and that it is nothing like what anyone expects.

Which is a good thing.

If the future were just like today we wouldn’t need help planning for it. We do need help preparing ourselves for the outliers, the black swans, the impossibilities that are going to blindside us.

Even if, in most cases, black swan events are impossible to deal with because they are exactly what we have not been planning for.

While we were planning for airplane hijackings and hostage taking-- relatively manageable, contained events-- someone was flying hijacked airplanes into skyscrapers.

But is prognostication just an exercise in futility? None of us really knows what the future has in store. Even those semi-fallible soothsayers, the astrologers, can’t agree on what the future holds.

Wouldn’t it be smarter to focus on the past, to study history and to learn about something that we can know as a fact? Why bother making blind conjectures about what might happen in the future?

Doesn’t history repeat itself? Or, does it only repeat itself for those of us who have not learned its lessons? More ominously, we have it on good philosophical authority that life is defined by the repetition compulsion and the eternal recurrence of the same.

But, do these concepts give us a glimpse of immortal truths or do they allow us to trick ourselves into thinking that we are preparing for the future while we are really just looking back at the past?

The truth is, if you are gazing intently on the past, waiting for it to return, then you are, almost by definition, a reactionary.

Would it not be better to put the past behind you and to look toward the future, to plan for future eventualities? Isn’t it better to be more positive, more forward looking?

As therapy has demonstrated, the more you look to why you got it wrong in the past the less you will be working on getting it right in the future.

If you focus on the past you are working on a story line. If you focus on the future you will be defining yourself as someone who can take action and affect your own life. But that assumes that you can tolerate the uncertainty of not knowing the outcome in advance.

We can make a mockery of New Year’s prognostications, but we should all plan for the future eventualities. Even though we face a myriad of different possible outcomes, some of which we can influence, some of which we cannot.

At the least, we should turn our backs on the past. What‘s past is past; it‘s over and gone. It’s more difficult to prepare for an uncertain future than to rehash past events whose outcome is fixed.

For those of us who want to hone our prognostication skills, here are a few rules that are worth following.

We know that the future is not going to be a repetition of the past. Thus, if the Tea Party was the big story in 2010, the chances are very good that there will be no other third party political movement in 2011.

Another rule is that the more people believe that something is going to occur the less likely it is to occur.

Worse yet, if your predictions correspond to everyone’s expectations, then you are going to be boring. And you don’t want to be boring.

So, if everyone believes that the economic recovery is here, that the stock market is signaling that happy days are here again, and that President Obama has gotten his mojo back, you can be fairly confident that we are headed for hard economic times and that President Obama is more likely to be a one-term president.

If everyone thinks that the storm has passed, you are more likely to be in the eye of the storm. And when the eye of the storm passes, you should batten down the hatches.

Next, we need most to prepare ourselves for the unforeseeable. Thus, the more outrageous predictions are often the most useful.

Winston Churchill put it best in a 1930 book, when he described what Nassim Taleb has called black swans: “Scarcely anything material or established which I was brought up to believe was permanent and vital, has lasted. Everything I was sure or taught to be sure was impossible, has happened.”

Of course, Churchill is not talking about his expectations that the sun will rise in the morning and set in the evening. He is talking about the eternal verities, especially those that concern political dynamics and historical possibilities.

No one predicted the carnage, to say nothing of the utter insanity, of World War I. And no one thought that Hitler would effect a holocaust of European Jews.

A few years ago most people believed that houses would always go up in value. A few knew that the housing market was in a bubble and that the situation was unsustainable. Precious few had sufficient foresight to prepare for the new world that would come into being once the financial markets seized up.

Right now, we are just beginning to digest the meaning of  “too big to fail.” It’s the title of an important book and will soon be a great movie.

But now that we have thought through whether any bank or nation is “too big to fail,“ are we ready to deal with institutions or nations that are: “too big to save?”

At what point do we run out of money and what will our world look like then?

After 9/11 everyone said that we failed to foresee the terror attacks because we lacked imagination. Perhaps we refuse to think the unthinkable. We are more comfortable thinking about what we know, about a world that is familiar and comfortable.

A world where the cash machines do not have any cash, where the supermarkets do not take our credit cards… such a world is painful to contemplate, extremely unlikely to come into being… so why bother to torment ourselves unnecessarily.

It’s not that we lack imagination. The problem is that we are not sufficiently insane to imagine that the unthinkable will come to pass. True prophets are like voices crying out in the wilderness.

They sound as though they are delusional, as though they have lost touch with concrete reality. The more delusional it sounds, the more impossible it seems, the more likely it is to fall into the category of those impossibilities that become our reality.

But even if it is true that every prophet sounds like he is delusional, not every delusional soul is a prophet. Just because you hear a voice crying out in the wilderness, that does not mean that you should believe what it is saying.


Chuck Pelto said...

TO: Dr. Schneiderman, et al.
RE: The Housing Bubble

A few years ago most people believed that houses would always go up in value. A few knew that the housing market was in a bubble and that the situation was unsustainable. Precious few had sufficient foresight to prepare for the new world that would come into being once the financial markets seized up. -- Stuart Schneiderman

What was it I said some time back? Something about....

If you have your priorities in their proper order, everything automatically follows.

Houses are for living in. Not 'investment opportunities'. Buy the proper house for the proper reasons and you'll always (1) have a great place to live and (2) benefit from when you HAVE to 'leave'.


[You can only serve ONE 'master'..... -- Some Wag, around 2000 years ago.]

Dennis said...

I have never given much credence to computer modeling or predictions by "experts." Years ago I took a class at the graduate level in which the author used an econometric model. At some point I had to laugh because by the time he selected the variables or lessened the importance of other variables, gave them weight, et al he essentially had a model that gave him the answers, surprise, he desired. The predictive capacity of his model was non existent because it could not predict the past economic conditions.
Statistics is called statistical inference for a reason. There is also a reason why they cannot be used in court. Much of it is based on imperfect information and in many cases unconscious bias.
The same thing is true for any predictive method we use. That is why we have human beings taking their best guess build on this and other information.
I personally believed that Economics should have stayed an Art. It is built on two fallacies; a rational seller and a rational buyer which do not exist except in very rare cases. One only has to look at the disastrous consequences of those economists advising Obama.
When one tries to predict how other human beings are going to act they are asking to be deceived.
Making all of what seems the right decisions at the right time DO NOT always lead to the outcome one desires. Though to not do so leads to far more problems than otherwise.

Chuck Pelto said...

TO: Dr. Schneiderman
RE: 'True Prophets'

The problem is that we are not sufficiently insane to imagine that the unthinkable will come to pass. True prophets are like voices crying out in the wilderness. -- Stuart Schneiderman

Welcome to the 'party', pal. -- Bruce WIllis, Die Hard

It's a 'perennial'—if not perpetual—problem with most people, that they can't think beyond what few synapses they have to rub together. God alone knows why, but there it is.

However, we few are charged—as the watchers in the tower—with warning them, as someone put it millennia ago. Whether or not they pay any heed to the warning is on their heads. We're only charged if we don't give a warning. Should we fail in that duty, their blood is on OUR head.


[The Truth wil out....not that many will 'appreciate' it....before it's 'too late'.]

Suncraig said...

"Man is not a rational animal; he is a rationalizing animal."

Robert A. Heinlein