April 17, 2013 by Liberty
You can tell a lot about someone based on the predictions they make. Predictions are made in every field. Sportcasters predict. Meteorologists predict. Economists predict. Mathematicians predict (but they call it estimating.) Prediction is a major part of the way the world works but it’s something that a lot of people completely misunderstand.
The way that a person looks at the future says a lot about them. It gives one of the clearest looks into their past possible. They’re giving an honest opinion about their own ability to see into the future from the past. Some people find it virtually impossible to predict certain things while others make prediction after prediction.
Some of the most dangerous predictions come from bankers, economists, and government systems. Despite their dismal success records, they continue to try to predict the future using certain models. They update the models. Then, when they’re wrong they say that they just missed adding in a certain factor. They always miss factors. They’re success rate usually matches dumb luck.
People still believe. You’ll find that’s a natural tendency among those that predict. When they’re right, they remember and brag. When they’re wrong they blame something out of their control and forget completely. There is no accountability within the people making predictions because they will always have the excuse, “No one could have expected me to predict that but otherwise, I would have been right.”
There are two things that you need to consider when you hear anyone make a prediction. These two things can tell you how based in reality these predictions really are.
The First Measure of Idiocy: A Timeline
People that predict using timelines are often being overconfident in their ability to predict the future. Bear in mind, some things, you can predict with reasonable certainty. Using the bus schedule, it’s reasonable to predict when the bus will arrive (but that won’t always be accurate.) On the other hand, if someone is telling you that stock XYX will raise 10% in the next month then you should be suspicious. He could have every company document but that doesn’t predict what millions of people will do with any real certainly. It also doesn’t account for the millions of factors that can change the next day.
Putting a timeline on something that is virtually unpredictable is a sign of idiocy. When there are millions of factors involved, it’s completely absurd.
It’s okay to make a broad prediction. It’s reasonable to say that you believe the economy will collapse. That is a little bold. It may even be borderline crazy but to say it will collapse in 6 months is absolutely insane. Once a timeline goes on a prediction, the likelihood of it being right drops immensely.
Government loves to use timelines on its predictions. They make predictions daily about the economy. Every decision they make is based on a prediction. Lawmakers say, if we mandate seatbelts, less people will die from cars. As cars speed up and more pedestrians and bikers die from cars, the predictors say that they were right because their meant people inside cars.
The Second Measure of Idiocy: Risk Involved
It’s okay to plan a family hiking trip based on a prediction. That’s why I still listen to the weather reports. The weather reports are often wrong (at least to some extent) but they do have technology that can guess better than I can. (People assume that’s true with most government predictions but it’s not.) When I go out on a hiking trip with my family, I may be disappointed to have a unpredicted rainy day but it doesn’t cause me any serious costly problems.
It’s not okay to make a prediction that the economy will improve when we do x and y. They could be right 90% of the time but it doesn’t matter. The times that they’re wrong it could lead to the collapse of the whole economic system.
You have to look at predictions in terms of the potential risks. How much can be lost if you’re not 100% right in the prediction. When people make predictions that can lose them everything, they’re often being stupid.
You could be 99.9% sure about something. That doesn’t make it a safe bet. What makes it a safe bet or not is how much is at risk and how much can be gained. If you’re betting $1000 with 99.9% certainty to gain a nickle when you’re right then you’re being stupid. That’s a bad bet that will make you lose more in the long run.
The biggest problem is that most situations can’t provide you with an exact percentage of certainty or risk. Risk can only be estimated. Small errors in that estimation can make a major difference. The worst that can happen matters more than the likelihood of it happening.
Prediction and Ethics
The people making predictions always assume that they’re right. They believe they’re more likely to be right then wrong, even when their record proves otherwise. It’s hard to blame someone for something that’s just beyond their level of intelligence. Some things are predictable. Some things are not predictable. When people try to predict the unpredictable with any level of certainty, they’re going to be wrong.
It’s the responsibility of the listener to decide whether or not the predictor is worth betting on. Don’t make your stock investment choices based on the guy you see on television unless you’re up for that risk. He could be taking orders from the company. He could just be throwing out a few entertaining lines that he likes but doesn’t really believe.
Deciding whether or not someone is genuine with their prediction is possible though. There is one simple method to decide how much you should trust the ethics of a person making a prediction.
Skin in the Game
There are a lot of ways you can test this prediction. You can ask all the questions about how he came to the conclusion. If you don’t know anything about horse races then this might not be an option. Say that you’re also low on time. You have 30 seconds to decide whether he’s genuine or not in his opinion. There is one question that you can ask to figure this out:
“What are you betting?”
If the guy shrugs and says nothing then get running in the opposite direction. There is no security in the bet for you. He could be just pulling your chain unless he has some real info.
If the guy shows you the ticket and tells you he’s betting his children’s college fund then it may be worth putting some change on the horse. I wouldn’t go betting your child’s college fund too but you can be confident that you’re talking to someone that really believes in their prediction.
(Of course, the fact that he’s betting on horses at all should probably be factored in. I still probably wouldn’t be betting.)
Casinos and gambling aren’t the best example. When someone makes a prediction in the real world, there is no way to measure the odds of them being right or wrong. The only thing that can be measured is how people are investing their own resources.
That is the best way to deal with just about anything. For example, people paid commission can give you tips on sales. People paid salary shouldn’t. Exceptions can be made with more information but it’s usually not worth trying to ferret out the facts because everyone thinks they can predict.
The most important two points in this article:
1. People that make predictions are usually wrong.
2. Only trust the ethics of the ones with something to lose. (It definitely doesn’t mean you should trust their methodology.)