Thursday, December 22, 2005

Life Is Not linear

Attempts to predict the future based on linear extrapolations of the recent past will fail.

This is a great time to look at a bunch of economic projections for the next year. All the big name economists feel compelled to predict the future.

Now is also a good time to look at last years predictions, if you can find them. Only those that came close will mention the prior end of year prediction. This is called survival bias; those that die are buried, it makes it look like there was a high percentage of successful tea leaf readers.

If the economists were far off, they guessed again right after the error became apparent, then guessed again when that failed, etc.. These are the economists that say " my mid year forecast was extremely accurate." An economist's slogan is, "If you can't guess right, guess often." They can then talk about any guess that went well, eventually.

If you look at the forecasts of many economists several things will stand out.
  • The forecast will look like the prior periods actual result.
  • Each forecast will be very similar to all the other forecasts.
  • If the forecaster is a contrarian, their prognostication will closely resemble other contrarian's forecasts.
  • Somewhere they will all say, "baring unforeseen circumstances."
Guess what, all of the future is made up of unforeseen circumstances. If they future were foreseen people would not pay economists to make guesses.

Life is not linear.

Save these forecasts and view them next year.

One thing will stand out.

All the forecasts will be closer to each other, than they will be to reality.

Distrust anyone, including me, that tells you they can guess the future.

For a more in depth view of life is not linear, read the rant at the bottom of another page; click=> Here.



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