Predicting with predictable prejudice.

image credit :

It sometimes seems that everything is changing.  We rely more and more on predictions or forecasts of how things will turn out in the new environment. 

Forecasting.  Can’t live without it, can we?

Yet the wisest comment I’ve read so far about the Vickers Independent Commission on Banking Report is from the FT’s banking editor Patrick Jenkins who says :”However hard the commission has worked to study the knock-on effects, any shift in financial rules – and Vickers is just a layer on top of many others in Europe and across the world – will have consequences that are both unintended and unforeseen”.

The intention of the report is clearly to protect the UK taxpayer, but we will end up with one of the toughest systems for banking in the world, and this will have repercussions both known and unknown.

Nicholas Nassim Taleb’s majestic book The Black Swan drives the point home again and again.  Forecasts cannot predict the unpredictable.  Therefore they are not much use when it comes to a crisis.

We don’t throw the analysis out however because of this truth.

All we can do is bear all of this in mind when we look at any kind of future trends.  Forecasters of any kind are prejudiced, they are likely to stick within established norms. 

It is extremely useful therefore to ask some what if questions that take you outside those norms.  What if demand doubled or halved ?  What if a brand (say Google ) outside our sector decided to enter it ?  What would Warren Buffet do ?


Leave a Reply