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The Fortune Sellers

The scholarly six

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Presentation Outline

David The second oldest profession When chaos rains

Aaron The dismal scientists The market gurus

Noyan Checking the “unchecked population” Science fact and fiction

Doug The futurists Corporate chaos The certainty of living in an uncertain world

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The Second Oldest Profession

What will the future bring? Cause of insecurity for all

Prognostication pervades many industries Economics Weather Financial services Demography Technology Futurists Business planning Fortune-telling

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Prognostication

Based upon deterministic thinkingFuture events unfold according to certain

rules and patterns that determine their course

Contrary: chaos and complexity theoriesHistory does not repeat itselfNo historical patterns exist to carve well-

marked trails into the future

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Erroneous Forecasting

“Forecasting is not a respectable human activity and not worthwhile beyond the shortest of periods” – Peter Drucker

Prediction industry is rife with error It is rare to find a prognosticator with a proven,

consistent track record Accurate prediction of singular major events

balance with poor long-term record

Situational bias obscures view of future

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Hazards of Faulty Predictions

Humans are a gullible lot Vulnerable to being duped by experts’ predictions

regardless of their track record It’s inherently easy for us to believe, and harder to

doubt or critically evaluate Faulty predictions cause needless anxiety

Doom-and-gloom forecasts succeed through sensationalism

Banking on faulty predictions ‘Voodoo economics’ – Reagan’s tax cuts and

economic stimulation caused deficit to increase by threefold in 8 years

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The Point

The Fortune Sellers discusses how to select nuggets of valuable future advice from the wealth of erroneous future predictions

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The Weather is Great

Weather forecasting has existed for thousands of years, because of the dramatic impact of weather on our lives

Historically, predicting the weather was more an art than science Folklore, astrology, almanacs Difficult to measure weather-related variables prior

to advent of radar and computers Now… In addition to government agencies

(such as NWS, NOAA), weather forecasting is a $300 million industry annually

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Partly Cloudy With Chance of Sun

The Butterfly Effect A butterfly in Amazon beating its

wings can dramatically alter weather

Fundamental issues in weather forecasting Laws governing weather are

volatile and amplify slight changes Difficult to specify initial conditions

upon which to extrapolate using such laws and models

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Chaos Rains

Noisy, nonlinear nature of weather Described by chaos theory: system is highly

sensitive to initial conditions and slight variations Longer-term forecasts suffer from ‘snowball effect’ Challenge with short-term is to get initial conditions correct

Modern weather forecasting is the most successful of those discussed in book Built upon proven laws of nature Accurate predictions for the very short-term future

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The Dismal Scientists

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Why Dismal?

An Essay on the Principle of Population (1798)

Very poor track recordFailure to foresee turning points

1987 stock market crash

Thomas Malthus

“Economists have forecasted nine of the last five recessions”

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Who are they?

Social scientists with dollar signs148,000 Economists working in:

GovernmentFederal ReserveCouncil of Economic Advisors (CEA)Congressional Budget Office (CBO)

Private SectorMedia

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Methodologies

Subjective Judgment Computer Models

1. Create Theory

2. Tweak model to validate theory using historical data

3. Predict the future!

Economic Religion

“For every economist, there is an equal and opposite economist”

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Misleading Indicators

Economists cannot predict the turning points

Accuracy drops with lead timeForecast skill is as good as guessingNo consistent skill by school or

statistic

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More Misleading Indicators

Sophistication offers no improvementPsychological biasConsensus offer no improvementNo skill improvement

“The problem with macro forecasting is that no one can do it” – Michael Evans

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Complex Systems

No governing natural lawsCannot be dissected into componentsHighly interconnectedPredictability and turmoilAdapt and evolveNo fixed cycles

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Pseudo Science

Data is scant and erroneousCrude approximations gathered

through surveys76% of theoretical articles found to

have no supporting dataTheories developed in a vacuumRational Assumption

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Negative Impacts

Political promisesFaulty decision making by

policymakers and long term business planners

Anxiety from doomsday predictions

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Self-Inflicted Wounds

Prediction undermines Economist’ credibility

Excessive belief in forecasting abilityNo more deterministic theories and

embrace complexityIncorporate the scientific method

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The Market Gurus

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The Market

Stock prices and corporate earnings are random

Part of the economic system3% of stock price variance correlated

to historic priceBear vs. Bull prediction

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Types of Analysts

Technicians Use historical stock prices “Buy low, sell high” Look for patterns and trends (Rorschach) Astrology

Fundamentalist1. Estimate Value

2. Determine current market value

3. Assume market will reach value equilibrium

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Efficient Market Hypothesis

3 Versions1. Strong

The market knows everything

2. Semi-Strong Market knows all published information

3. Weak No prediction based on historical share price

More applicable to Fortune 100

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15 Minutes of Fame

1,000’s of simultaneous predictionsChance allows for a few accurate

callsNo consist accurate calls1 out 108 beat the marketExcept Peter Lynch

Avoid the known zone

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The Value Line Myth

Over 100,000 subscribers pay $535Predicts 1,800 stocks by grouping

into 5 groups based on performance

•Grouped by risk which will guarantee higher returns

•Self fulfilling prophecy through influence

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Market Truth

Don’t confuse skill with luckAvoid market timersInvest wisely, hold long term stocks

through bull and bear marketsAvoid “permabears”Diversify!

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Checking the “Unchecked Population”

The Ice Age Cometh

Global Famine

Societal Collapse

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Population Forecasting

Forecasts are needed: By public sector to determine future need

for municipal requirementsBy governments to plan for the funding of

social programsBy corporations to determine future

product demand and store locationsWrong estimations Big problems

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Population Predictability

Life Expectancy 200,000 years from

25 to 47 100 years from

47 to 77

Population Beyond the limits is

the question

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Methodology

Cohort Component Model:

Future Population = Current Population + Births – Deaths + Net Immigration

Births & Deaths & Migrations

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Reliability of Forecasting

Forecasts from already existing cohorts are accurate

Forecasts of population counts are more reliable than growth rates

Steady growth allow for greater forecast accuracy

Accuracy is less dependable for rapidly growing populations

Accuracy is higher for larger geographic areas

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Predictions

Malthusian Prediction “Population, when unchecked, increases

in a geometrical ratio, while subsistence increase only in an arithmetical ratio.”

The Club of RomeThe Limits to Growth

Environmental IssuesGlobal warming

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Science Fact and Fiction

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“The Dark Art”

Analytic tools Delphi Method

“A brainstorming session with a panel of experts

S-Curve

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Promises

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Out of the Blue

Telephone Western Union memo, 1876: “This 'telephone' has too many

shortcomings to be seriously considered as a means of communication.”

Computers Ken Olson, president of Digital Equipment Corp. 1977: “There

is no reason anyone would want a computer in their home.”

Beatles Decca executive, 1962: “We don't like their sound. Groups of

guitars are on the way out.”

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Uncertainties in Technological Evolution

Technological Lock-in

Creative destruction

Technological synergies

Unworkable Concepts

Unknown applications

Unproved Value

Chance event

A few successfultechnologies

Ten millions of research projects

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The FuturistsPredicting Societal Change

Chapter 7

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Infirm Foundations

“Forecasting is not a respectable human activity” – Peter Drucker

Society is an ultra-complex system Everything that affects society is unpredictable -

Therefore, societal change is unpredictable

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Infirm Foundations

Karl Popper Introduced the notion of society as

an unpredictable complex system in 1930s

He said “a society does learn, in so far as it is partially conditioned by its past”

Adamant that scientific predictions are impossible in social science

Unknown initial conditions No natural laws to govern behavior Chance and accident

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Popper’s Corollary Principles

History does not repeat itself Major social trends, movements, and

revolutions surprise those closest to the events

Social theories are necessarily weak Social predictions are subjective Social predictions tend to be wrong Social science?

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The Newtonian Socialists

Argument: If Newton can predict the paths of planets, they thought they could predict social evolutionMillMarx

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Utopia to Techno-Totalitarianism

Utopia Technology is the key to Utopia Edward Bellamy’s Vision

Some predictions prescient Others just were just wishful thinking

Utopian optimism dwindled after WWI

Techno-Totalitarianism Technology runs amok Wars more efficient 1984

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Futurology

There is no single future – the objective becomes to identify and describe useful rang of alternatives

We can see those alternative futures

We can influence the future We have a moral obligation to

anticipate and influence the future

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Examples of Futurists

Ford HorsesKeynes TreatyFreud ReligionChurchhill 50 years henceToffler Dead wrongTrend Spotters

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An Excuse to do the Inexcusable

The tyranny of prophecyHitlerLeninMaoManifest DestinyDomino Theory

Must avoid ignoranceScientific bigotry

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Corporate ChaosPlanning for the Future

Chapter 8

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The Era of Planning

General ElectricA corporate planning

department with 193 planners

The U.S. governmentPlanning Programming-

Budgeting System (PPBS) Boston Consulting Group

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Predicting the Unpredictable

Everything a planner would like to know about the future is unpredictable

Organizations are also complex systems No way to know how an organization

works

No durable laws in management science

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The Illusion of Control

The illusion is that anyone could master the dynamic and detailed complexity of an organization from the top

Organizations have the capability to achieve great things on their own Adapt to change in the environment Innovation and creativity come naturally Self-organization enables organizations

at their lowest levels to response to emerging threats

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The Future is totally unpredictable

The Future Does Not Exist

The Present

Future Possibilities Bounded By PresentRealities

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Thriving in the Future

Self-organizationIntelligenceNatural reflexesMutationSymbiosisCompetitive challengesLeadership

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The Certainty of Living in an Uncertain World

Only fools, liars, and charlatans predict…

Chapter 9

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The Only Certainty

Chaos pervadesComplexity rulesThe only certainty is that

we are destined to live in an unpredictable world filled with uncertainty

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How to Cope

Think CriticallyFirst reaction to any forecast should

be skepticismBased on hard science?How sound are the methods?Credible credentials?Proven track record? Influenced by my own beliefs or wishes?

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Que Sera, Sera?

We are better able to influence than predict the future

Uncertainty, luck, and chance events will play a part in our lives

Don’t make a right decision, work to make your decision right