The Frailty of Market Predictions

The unexpected Brexit vote and Donald Trump’s presidential election victory both occurred despite overwhelming predictions to the contrary, writes John Reese in a recent article for The Globe and Mail. The CEO of Validea illustrates how forecasting in the world of investing is “equally fraught with unpredictable outcomes despite seemingly reasonable expectations.” Reese supports his argument with the research findings of psychology professor Philip Tetlock, who conducted a study of the predictive success of both experts and non-experts and analyzed upwards of 80,000 forecasts regarding various political and economic events. Tetlock found that, regardless of educational background, experience or access […]

The Forecaster and the Dart-Throwing Chimp

The ability to predict the future sounds pretty enticing, but few (if any) are any good at it. In 2005, Wharton professor Philip Tetlock studied how ‘experts’ did at forecasting, and discovered that they were only slightly better at it than, say, a dart-throwing chimp. He spent the next ten years trying to figure out what separated most forecasters from those few that seemed to have real foresight. Tetlock shared his thoughts, the subject of his book Superforecasting (published last year and co-authored with Dan Gardner) with Wharton’s online business journal Knowldge@Wharton. In the study, Tetlock recruited volunteers from all […]

Tetlock On What Makes A Good Forecaster

How often are supposedly “expert” forecasters’ predictions right? A lot less often than you might think, according to researcher Philip Tetlock. But in a recent interview on Barry Ritholtz’s Masters in Business podcast, Tetlock says you can take steps to make yourself a better forecaster. Tetlock, a professor at the University of Pennsylvania and author of multiple books on the science of prediction, has found that as a group, supposedly expert forecasters don’t have much more predictive ability than average people. He’s also found that both experts and nonexperts tend to lag simple computer models when it comes to predictive […]

What Makes a “Superforecaster?”

Writing in Adviser Perspectives, mathematician and economist Michael Edesess discusses Philip Tetlock’s work examining “superforecasters” with co-author Dan Gardner.  Superforecasters, as Edesess explains, are the few volunteers in Tetlock’s forecasting study who “measure as significantly and consistently better than the others and much better than a dart-throwing chimpanzee.” Tetlock defines “foxes” and hedgehogs” among the large number of forecasters enrolled in his study. As the Greek poet Archilochus put it, “the fox knows many things, but the hedgehog knows one big thing.” Edesess explains: “Tetlock found that hedgehogs, who were certain about the one big thing they believed they knew, […]

4 Ways On How to Improve Forecasting Skills, a Credit Suisse Report by Mauboussin

In the aggregate, forecasters may be “roughly as accurate as a dart-throwing chimp,” but some forecasters are particularly and consistently far better than average. Credit Suisse reports that the book Superforecasting: The Art and Science of Prediction by Philip Tetlock and Dan Gardner provides important insights into how to improve forecasting skill, perhaps by as much as 60%.  In other words, there are measurable differences between run-of-the-mill forecasters and “superforecasters,” and these differences can be a guide to improving forecasting skill. Drawing on Tetlock’s work, the Credit Suisse report, which was written by Michael Mauboussin and Dan Callahan, provides four key ingredients for managers seeking […]