Change the way you look at economic forecasts
'Future Babble -- Why expert predictions fail and why we believe them anyway'
Published 07/04/2011 | 05:00
Published by Crimson
This is an excellent and easy- to-read book that could just change the way you think about an important topic.
Canadian journalist Dan Gardner's basic idea is simple enough; that experts are about as accurate as dart-throwing monkeys but our genetic make-up compels us to believe them anyway despite their mistakes.
Perhaps the most amusing part of the book is Gardner's gallop through the recent past and the hundreds of predictions made about everything from oil prices and economic growth to what we will eat and what planet we would live on.
It is salutary to remember that just a few years ago serious men were predicting that many of us would be living on the moon, suffering from famine or eating nothing but seaweed.
It is also worth remembering what was not predicted by most analysts. The collapse of the Soviet Union is one event; the recent unrest in the Middle East is another.
Readers of 'Black Swan' will be in familiar territory but 'Future Babble' is much easier to read and yet more sceptical about our ability to peer into the future.
Gardner, who has also written a useful book called 'Risk', uses cognitive psychology, political science and behavioural economics to explain why we insist on believing prognostications when all the evidence suggests we should ignore them.
Here in Ireland we still tend to pay attention to forecasts about economic growth from the Central Bank and the Department of Finance despite their woeful record when it comes to calling the economy.
Those who despair of our homegrown economists might derive some solace from a study quoted by Gardner which shows that the council of wise men that advises the White House has enjoyed an almost equally poor record over the past decade.
Gardner offers several good rules of thumb to assess the likely correctness of a forecast. He finds the more famous a pundit is, the more likely he is to get it wrong. He provides evidence that experts who are right are least confident in their views. He also shows that the more uncertain the environment, the more likely we are to believe pundits -- a phenomenon demonstrably alive and well in modern-day Ireland.
Some readers will undoubtedly find 'Future Babble' a little glib, but this reviewer hopes that it has changed his way of thinking forever. It makes sense to more or less ignore the hundreds of forecasts we encounter every year and get on with business.
Gardner quotes that most austere of philosophers, Karl Popper, who taught and influenced billionaire financier George Soros with the credo that: "Instead of posing as prophets, we must become the makers of our fate."
It is a mode of thought that could be inscribed over the doors of every government department, especially the Department of Finance, as we try to dig ourselves out of our present hole.