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Wednesday, September 11, 2013

No, we cannot predict the future

Craig Willy wrote an interesting piece a while ago arguing that "we can predict the future" that I finally got around to reading. More specifically, he believes "intelligent, free-thinking people really do have the ability, not to tell divinely-inspired prophecies, but to clearly identify the trends that will influence the future." He goes on to cite "Andrei Amalrik’s 1970 Will the Soviet Union Survive Until 1984? or Emmanuel Todd’s 1976 The Final Fall: An Essay on the Decomposition of the Soviet Sphere" as examples of "brilliant free-thinkers using the information they had" to predict what came to pass.

I disagree. 

Obviously, spirited minds writing against the mainstream of their time and being proven right by history are intellectually imposing characters. For me personally Keynes' The Economic Consequences of the Peace written following the Treaty of Versailles is the most impressive one of these. Yet, the problem is that for every single one of these free-thinking (or mainstream really) writers who get it right there are at least as many who are completely off. To look in retrospective for those few people who did manage to foresee the future is a fun intellectual exercise of course, but how is there any objective way of knowing who those outliers are today?

Jean-François Revel wrote Comment les démocraties finissent in 1983, predicting the end of democracy and the victory of the superior Soviet model [disclaimer: I haven't actually read this, but know of it]. Francis Fukuyama announced the End of History in 1992 and that liberal democracy had won. The list goes on.

Having worked for a global intelligence company once I know far too well that predicting the future for the most part is simply an extrapolation of current trends. Check out George Friedman's The Coming War with Japan for a chuckle, but keep in mind that this was probably more or less considered common sense at the time. Look at Why Middle East Studies Missed the Arab Spring. Read Krugman's Cautionary Fable on the menace the "rapidly growing Eastern economies [...] of the Soviet Union and its satellite nations" posed to "not only [...] Western power but [...] Western ideology." Paul Samuelson's text book on economics contained a section (in 19732) where the author expressed the view that "the Soviet Union’s per capita income would continue to grow, and would probably match that of the USA by 1990 and overtake it by 2010!" (h/t to this guy)

Maybe most importantly, success in predicting the future is not an indicator of repeating said performance. Goetzmann, Ibbotson and Brown find this in a study on hedge fund managers. Roubini of course called the financial crisis (even if he did so repeatedly and continously until it finally became true) but he also said in 2010 that "in a few days time, there might not be a Eurozone for us to discuss" (and I guess he could still be proven true, but...).

Point being that social sciences are incapable of predicting systems as complex as human societies. Maybe - at best - we can detect tendencies as Craig says, yet even those Nassim Taleb [disclaimer: another book I will read soon, but haven't yet] would argue can be thrown off track by black swans (known unknowns Donald Rumsfeld would probably call these) and thus become irrelevant. 

I would go even further in arguing that the models we rely on to determine what the future will be like are too simplistic to be more than an educated guess of what will actually happen. The world we live in is simply too complex and there are far too many factors to be taken into account to allow us to properly understand where we are going. 

As uncomfortable as that may be and as little as that should stop us from trying.

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