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Forecasting, will this time be different?

Updated: Sep 16, 2019

There are startups and established players selling their services claiming this time it is different, we will have the best, most accurate forecasts because of advances in technology, artificial intelligence, big data and powerful algorithms. Make no mistake, technology has indeed advanced significantly and is making huge leaps in computing power. This is also the case in political risk and geopolitical forecasting with a plethora of companies adding 'AI' driven services. But is it really different this time around given the dismal track record the political risk and economic profession has in forecasting?

The track record of analysts and economists is less than impressive, here's a recent article from Bloomberg -

With recession talk returning to haunt financial markets and the corridors of central banks, a review of the past suggests that those who are paid to call turning points in economic growth have a dismal record. Unlike the stock market, they’re more likely to miss recessions than to predict ones that never occur. The lowlight, of course, was the widespread failure to forecast America’s Great Recession, which began in December 2007—nine months before Lehman Brothers filed for bankruptcy.
BOTTOM LINE - Economists’ inability to accurately predict recessions is a source of concern when key indicators in several countries seem to be flashing red.

This is true across a number of disciplines, here from the Financial Times

We should not blame economics alone for our inability to peer into the future of a complex world. In 2005, Philip Tetlock, a psychologist, published a landmark work with the title Expert Political Judgement. Tetlock found that throughout the 1980s and 1990s, political and geopolitical forecasts had been scarcely better than guesswork. It made little difference whether the forecaster was an academic, journalist or diplomat, a historian or a political scientist. Forecasting is difficult, it turns out. (Supply your own punchline.) As for Tetlock, he is currently conducting a follow-up study to see whether forecasting practices can be saved.

This time around, experts, analysts, economists and tech innovators are looking to solve this vexing problem. One cannot discount the power of technological change, innovation and human ingenuity, and as such I won't say this time won't be different. However, until we get there, we, collectively are bound to make some wrong calls and forecasts with some devastating consequences. RESILIENCE - being able to manage no matter what the outcome (under most circumstances, a nuclear war, maybe something once cannot prepare to manage through for example) becomes critical, it should be part of an organizational risk management, vs focusing purely on predictive analytics and forecasting.

Understand, be prepared, be resilient.

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