The Folly of Predictions
The authors of “Freakonomics: A Rogue Economist Explores the Hidden Side of Everything” maintain a blog. University of Chicago economist Steven Levitt and New York Times journalist Stephen J. Dubner use statistics to test many social ideas. I found their recent podcast titled “The Folly of Prediction” to be quite interesting, especially as it relates to investing.
The gist of the podcast is something like this:
- Human beings love to predict the future.
- Human beings are not very good at predicting the future.
- Because the incentives to predict are quite imperfect – bad predictions are rarely punished – this situation is unlikely to change.