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Why predictions go wrong

Predicting the future is a very valuable skill. Most people have their pet rules on how to predict the future. Then there are others who believe that everything that happens is preordained, so why bother to try to outguess the Cosmos. 

At this time we are just emerging from a lockdown because of the COVID 19 pandemic. There is a lot of uncertainty about what will happen next

  • Will there be a second wave, resulting in many more deaths?
  • Will the pandemic mysteriously disappear?
  • How soon will a vaccine be developed?
  • Will there be a prolonged economic downturn with massive unemployment?
  • Will the stock market retreat to new lows?
  • Will there be historic buying opportunities?

In essence, we wonder, what will the emerging post-pandemic world look like? If it will change, will these changes be permanent? Or will things go back to the good old ways?

How we make predictions about the future, can and will play a major role in how our lives will turn out. Today we will examine the process by which human beings make predictions about the future. (This is based on the work of Daiel Kahneman and Amos Tversky). ………..Pages 197- 198 The Undoing Project by Michael Lewis

  • People predict by making up stories
  • People predict very little and explain everything
  • People live under uncertainty whether they like it or not
  • People believe they can tell the future if they work hard enough
  • People accept any explanation, as long as it fits the facts
  • The handwriting was on the wall, it was just that it was invisible
  • People often work hard to obtain the information they already have and avoid new knowledge
  • Man is a deterministic device thrown into a probabilistic world
  • In this match, surprises are expected
  • Everything that has already happened, must have been inevitable

Now let us examine the difference between a judgment and a prediction. Normally when we make a prediction (about the future) it is based on a judgment. But, when we are dealing with something that has not happened, there is always uncertainty about whether it will happen or not.

So by necessity, a prediction is a judgment that involves uncertainty.

So it follows that to be able to make the best predictions one should follow the rules of the statistical theory that is the rational science of dealing with uncertainty.

But we don’t do that.

Instead, most people rely on a limited number of heuristics which sometimes yield reasonable results and at other times lead to severe systemic errors.

There are four Heuristics that they identified

  • Representativeness …………(Pages 183 – 184)
  • Availability …………… (Pages 188-190)
  • Anchoring ……………..( Pages 218-220 )
  • Simulation …………….( Page 300)

In the next article, we will discuss how these Heuristics are used in making predictions. We will also examine how they changed almost everything about how we look at
economic theories, medical protocols, political choices, college selection processes, military decisions, leadership and most importantly how they make us look
at happiness differently. 

In my opinion, the work of these two men has exposed many myths and theories that were considered time tested and true. It has been both a humbling experience and a growing journey for me.

How did the various Cultures react to the onslaught of the Europeans in the mid-nineteenth century? (around 1840-1860)

This was the period of the Industrial Revolution!

  • Slavery had ended in Britain
  • Trains
  • Textiles and Telegraph
  • Enlightenment being replaced by Romanticism

1 India

  • Who was the dominant power?
  • Were they ethnically united?
  • Where or what was their focus?

2 China

  • Who was the dominant power?
  • Were they ethnically united?
  • Where or what was their focus?

3 Japan

  • Who was the dominant power?
  • Were they ethnically united?
  • Where or what was their focus?

4 Europe

  • Who was the dominant power?
  • Were they ethnically united?
  • Where or what was their focus?
Ranvir “Biki” Mohindra is the chairman emeritus of Share Our Secrets (SOS). SOS students credit Mr. Mohindra with teaching the secrets of getting ahead in professional career and personal life.

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