Accuracy of Predictions

"...The main point......is not that people who attempt to predict the future make many errors......is that errors of prediction are inevitable because the world is unpredictable. The second is that highly subjective confidence is not to be trusted as an indicator of accuracy......Short-term trends can be forecast, and behaviour and achievements can be predicted with fair accuracy from previous behaviours and achievements......behaviour both on the test and in the real world is determined by many factors that are specific to a particular situation......The question is not whether these experts are well trained. It's whether their world is predictable......The score in the contest between algorithms and humans has not changed. About 60% of studies have shown significantly better accuracy for the algorithms......In every case, the accuracy of experts was matched or exceeded by a simple algorithm...... Inferiority of expert judgment is that humans are incorrigibly inconsistent in making summary judgments of complex information.....to maximise predictive accuracy, final decision should be left to formulas, especially in low-validity environments..."

Daniel Kahneman 2012

"...Statistical algorithms greatly out-do humans in noisy environments for two reasons: they are more likely than human judges to detect weakly valid cues and much more likely to maintain a modest level of accuracy by using such cues consistently..."

Daniel Kahneman 2012

An example of how hard it is to predict the future is shown by comparing some events that occurred in 2008/09 with those a decade later, ie 2018/19. For example, basing projections on John Howard as the second longest serving Australian PM, ie around 11 years, would prove incorrect as in the next decade, Australia would have 6 prime ministers!!!!

2008/09
2018/19
Barack Obama (Democrat) was President of USA Donald Trump (Republican) was President of USA
Kevin Rudd was Prime Minister (PM) of Australia after John Howard's 10+ years in office Australia has had 6 PMs in 10 years
Global Financial Crisis impact, eg stock market crashes, etc Stock markets recover to pre-GFC levels
Globalisation in full swing, eg BRIC Increase in tribalism like trade wars, eg China v. USA
Central-leftist governments dominate in democracies Populist politicians on the rise, eg BREXIT, Trump, etc
Australian cash rate (falls from around 6% to 3%) Australian cash rate (1.0%)
Traditional "bricks and mortar" firms dominate Techno-giants dominate, eg FANG
BlackBerry dominant technology with mobile phones Smart phones, eg iPhones

(source: Brad Holzberger, 2019)

 

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