10 February, 2021 Total Client Experience

Why Experts Predictions Fail and Why We Believe Them Anyways

Why Experts Predictions Fail and Why We Believe Them Anyways

In early 1914 the celebrated Manchester Guardian journalist H.N. Norman stated, “It is certain as anything in politics can be…there will be no more wars among the six Great Powers.”  A few months after this declaration of eternal peace, the First World War started.

In 1968, Stanford University Biologist Paul Ehrlich declared in his best-selling book, The Population Bomb “In the 1970s, the world will undergo famine and hundreds of millions of people will starve to death.” Unfortunately for Paul Ehrlich, mass famines did not occur.

In early 2008 the 54 economists at the White House’s Counsel of Economic Advisors, confidently predicted under the heading, “Slower but Steady Growth” that in 2008 the economy wouldn’t “sink into recession” and that 2008 would be a “solid but unspectacular year.”  Shortly after came the worst economic disaster since the 1930’s.

How about President Jimmy Carter’s 1977 prediction that “…in the early 1980`s the world will be demanding more oil than it produces and prices would soar.”  In 1985 oil prices dropped 70% in a few months and stayed there for 20 years.

The media is full of conflicting predictions from “experts” about trends in economics, stock trends, the price of oil, and interest rates that are often wrong.  Why are these experts so wrong so often?

The above is from the book, Future Babble, Why Experts Predictions Fail – and Why We Believe Them Anyway, by Dan Gardner.

Research has found that the bigger the media profile of the “expert” the less accurate are their predictions. Those who are the most confident and deliver the best sound bites and compelling stories are actually most likely to be wrong. Yet these are the “experts” we tend to believe most.

The book suggests that humans tend to view the world as “linear” or that whatever trend is happening now will continue. But, for the most part, we live in a nonlinear world in which completely unexpected change occurs continuously. There are just too many variables to predict almost anything.  This has been called the “Butterfly Effect.” Even with today’s supercomputers, weather forecasts for more than a few days out are almost the best guesses.

Why am I telling you this?  Most of us are influenced by sound bite predictions from “experts” about the economy, the stock markets, interest rates, etc., even though these predictions are often wrong.  We very often make very poor decisions based on completely flawed information. These decisions can be very costly.

Since virtually no one can consistently predict markets, economics, and interest rates, our long-term investments and financial decisions should only be based on sound proven strategies that have worked consistently over a long period.

The help of a qualified Advisor intimately familiar with your situation, your temperament, and your goals versus the media “experts” is a great way to avoid making bad decisions based on “experts” great sound bites.