Freakonomics: The Folly of Prediction
Phil Tetlock on the value of prediction:
“I think there’s an asymmetry of supply and demand. I think there is an enormous demand for accurate predictions in many spheres of life in which we don’t have the requisite expertise to deliver. And when you have that kind of gap between demand and real supply you get the infusion of fake supply.”
LEVITT: So, most predictions we remember are ones which were fabulously, wildly unexpected and then came true. Now, the person who makes that prediction has a strong incentive to remind everyone that they made that crazy prediction which came true. If you look at all the people, the economists, who talked about the financial crisis ahead of time, those guys harp on it constantly. ‘I was right, I was right, I was right.’ But if you’re wrong, there’s no person on the other side of the transaction who draws any real benefit from embarrassing you by bring up the bad prediction over and over. So there’s nobody who has a strong incentive, usually, to go back and say, Here’s the list of the 118 predictions that were false. I remember growing up, my mother, who is somewhat of a psychic–
DUBNER: Wait, somewhat of a psychic?
LEVITT: She’s a self-proclaimed psychic. And she would predict a stock market crash every single year.
DUBNER: And she’s been right a couple times.
LEVITT: And she has been. She’s been right twice in the last 15 years, and she would talk a lot about the times she was right. I would have to remind her about the 13 times that she was wrong. And without any sort of market mechanism or incentive for keeping the prediction makers honest, there’s lots of incentive to go out and to make these wild predictions. And those are the ones that are remembered and talked about. Think of about one of the predictions that you hear echoed more often than just about any one is Joe Namath’s famous pronouncement about how the Jets were going to win the Super Bowl. And it was unexpected. And it happened. And if the Jets had lost the Super Bowl, nobody would remember that Joe Namath made that pronouncement.