Making accurate predictions: are you a hedgehog or a fox?
05-03-11
An interesting article about prediction in Scientific American (http://www.scientificamerican.com/article.cfm?id=financial-flimflam), which basically says people are lousy at predicting when there is uncertainty, and among other things accusing investment managers who claim they can beat the market as engaging in “financial pseudoscience”. A study of 284 experts making 82,361 predictions showed that they did little better than a dart-throwing chimpanzee.
Gloomy news, except that it turns out that cognitive style leads to greater ability to making predictions well. Experts who know a lot about one area and tend to dig in, called “hedgehogs” tend to do worse than people who know less about lots of things and maintained more flexibility and humility, called “foxes.
This rings true with my experience. The more someone claims to know something for sure, the worse his or her ability to forecast, which is ironic, because we often use confidence as a proxy for believability. Yet it is those who are knowledgeable but a bit less confident who actually make better predictions.
Which are you, a fox or hedgehog? Know any foxes? Know any hedgehogs?
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