An interview in this month’s Harvard Business Review looked at yet more research showing the folly of expert forecasting. “‘Experts’ Who Beat the Odds Are Probably Just Lucky” discusses a study by Warwick Business School’s Jerker Denrell who worked with Christina Fang of the Stern School of Business. They analyzed years of experts’ quarterly forecasts for interest rates and inflation published in The Wall Street Journal.
What’s especially fascinating is their finding that the experts “who successfully foresee an unusual event tend to be wrong about the future over the long run…in our study an ability to call many extreme events correctly was an indication of poor judgment. In fact, the analyst with the largest number of accurate extreme forecasts had the worst forecasting record by far.”
This is consistent with the work of Philip Tetlock, professor of psychology, business, and political science at University of California Berkeley, as reported by Dan Gardner in his book, Future Babble: Why Expert Predictions Fail — and Why We Believe Them Anyway. One of Tetlock’s many studies on forecasting inaccuracies involved using Google searches to determine the fame of each of 284 experts. He then correlated their level of fame to the accuracy of their forecast. His finding: “the more famous the expert, the worse he did.”
Yet it’s impossible to escape expert forecasts on any radio or TV news around a breaking news story. Whether it’s terrorism, gun violence, natural disasters, political wrangling, or economic data, experts are asked to prognosticate, opine, and forecast. And the better the expert articulates his or her arguments in forceful and crisp sound bites, the greater likelihood they’re totally wrong.
If we treat expert forecasts like astrology or fortune cookies they can be entertaining and fairly harmless. I change channels or flip the page. The big leadership danger is building strategic plans and budgets around forecasts. But many organizational leaders are as addicted to forecasts as the Commanding General who said he was aware that long term weather forecasts were totally useless but “I need them for planning purposes.”
Expert forecasts have increased as our need for certainty in a very uncertain world keeps growing. The real key is building teams and organizations that are built to change. That calls for developing leadership skills to building highly flexible and rapidly adaptive organizations.