Paul Saffo Six Rules for Effective Forecasting Full Summary in Free Essay

5566 Words Mar 18th, 2013 23 Pages
Six Rules for Effective Forecasting
People at cocktail parties are always asking me for stock tips, and then they want to know how my predictions have turned out. Their requests reveal the common but fundamentally erroneous perception that forecasters make predictions. We don’t, of course: Prediction is possible only in a world in which events are preordained and no amount of action in the present can influence future outcomes. That world is the stuff of myth and superstition. The one we inhabit is quite different—little is certain, nothing is preordained, and what we do in the present affects how events unfold, often in significant, unexpected ways.
The role of the forecaster in the real world is quite different from that of the
…show more content…
These are just a very few representative examples. (See the exhibit “Mapping the Cone of Uncertainty” for more on the process.)
Mapping the Cone of Uncertainty
Drawing a cone too narrowly is worse than drawing it too broadly. A broad cone leaves you with a lot of uncertainty, but uncertainty is a friend, for its bedfellow is opportunity—as any good underwriter knows. The cone can be narrowed in subsequent refinements. Indeed, good forecasting is always an iterative process. Defining the cone broadly at the start maximizes your capacity to generate hypotheses about outcomes and eventual responses. A cone that is too narrow, by contrast, leaves you open to avoidable unpleasant surprises. Worse, it may cause you to miss the most important opportunities on your horizon.
The art of defining the cone’s edge lies in carefully distinguishing between the highly improbable and the wildly impossible. Outliers—variously, wild cards or surprises—are what define this edge. A good boundary is one made up of elements lying on the ragged edge of plausibility. They are outcomes that might conceivably happen but make one uncomfortable even to contemplate.
The most commonly considered outliers are wild cards. These are trends or events that have low probabilities of occurrence (under 10%) or probabilities you simply cannot quantify but that, if the events were to occur, would have a disproportionately large impact. My

Related Documents