Saturday, October 23, 2004
[MANAGEMENT]Forecasting failure
Forecasting failure
Telecom Asia October 2004
The old joke that God created economists to make weather forecasters feel good, misses the fact that technology gurus were later designed to boost the egos of everyone. Technologists tend to believe that their strictly-bounded ITC world always drives progress, rather than following society’s needs.
This fueled the irrational euphoria of the dot-com boom and fired the fiasco of Y2k – both also driven by media hype and greed. Another contributing factor was our sloppy use of terminology: the English language has never managed to clarify terms relating to future knowledge or distinguish between different biases and different approaches.
The word “foretelling”, for instance, should be limited to the intuitive faculty that gypsies demonstrate with crystal balls. It claims to reveal glimpses of perfect “foresight”.
However, “forecasting” is (or should be) a logical process, involving extrapolation from existing facts and trends for a limited period of time.
Forecasting should carry a time scale, and a range of potential statistical error. Foretelling claims to be absolute.
The American economist, Richard Thaler, has noted five biases that influenced forecasting, and his listing is worth examining in the light of repeated failures in most ITC areas to provide useful guidance.
1. Over-confidence:
About 90% of car drivers believe they are above average in driving ability; yet we know that only half are. But, even when you explain this logical anomaly to a large group, it’s entirely unlikely that anyone will re-evaluate his/her own driving ability.
Over-confidence, Thaler says, induces people to make forecasts that are bolder than they should be. There’s an age-difference here also – young people tend to be more over-confident.
2. Optimism:
Of course optimism is built into government statistical forecasts as a matter of course, as it is in businesses promoting the size of markets or the social and economic benefits of technological developments.
But even with private-sector forecasting, companies or trade organizations invariably show a high degree of wishful thinking.
There’s an old adage: “To the man with a hammer, every problem looks like a nail,” and this seems to fit rather well here also. People tend to make their judgment of the problems effecting the future in terms of the solutions they are able to offer.
In your area of expertise, you will usually forecast more optimistically than most and have higher levels of confidence in your judgment. The corollary (which Thaler didn’t touch on) is that you’ll also tend to down-value the solutions offered by others.
3. False consensus:
This factor was more responsible for the Y2K problems and the tech-wreck than all others combined.
When computers first appeared on desktops, two types of office workers immediately reaped benefits: accountants with their calculating spreadsheets and journalists who were suddenly able to make last minute changes to copy.
Journalists could see no need for a printer if keystrokes could be electronically injected into the photo typesetter, and they enthusiastically promoted their new toys in the media. This led directly to the 1975 Business Week prediction of the paperless office – a fallacy that lasted 25 years.
And, since accountants held the company purse-strings, computer sales took off because they also exaggerated the (then) commercial value of PCs to everyone.
4. Curse of knowledge:
Thaler’s point here is that we take for granted what we already know, and we can’t imagine that others don’t think the same way. This differs from false consensus because it colors the background of our thinking (our ability to judge) rather than the foreground.
Through nature and nurture, every person’s problem-solving faculties have evolved in different ways, yet we assume that any logical person should see what we see.
5. Status quo resistance:
This simply means what it says. Most people are resistant to change – even those at the leading edge who aspire to be fashion leaders. People are only willing to accept radical change to a limited degree – and then only in limited areas in their lives.
Stewart Fist (fist@ozemail.com.au) is an Australia-based, award-winning journalist and columnist, and author of The Informatics Handbook
Telecom Asia October 2004
The old joke that God created economists to make weather forecasters feel good, misses the fact that technology gurus were later designed to boost the egos of everyone. Technologists tend to believe that their strictly-bounded ITC world always drives progress, rather than following society’s needs.
This fueled the irrational euphoria of the dot-com boom and fired the fiasco of Y2k – both also driven by media hype and greed. Another contributing factor was our sloppy use of terminology: the English language has never managed to clarify terms relating to future knowledge or distinguish between different biases and different approaches.
The word “foretelling”, for instance, should be limited to the intuitive faculty that gypsies demonstrate with crystal balls. It claims to reveal glimpses of perfect “foresight”.
However, “forecasting” is (or should be) a logical process, involving extrapolation from existing facts and trends for a limited period of time.
Forecasting should carry a time scale, and a range of potential statistical error. Foretelling claims to be absolute.
The American economist, Richard Thaler, has noted five biases that influenced forecasting, and his listing is worth examining in the light of repeated failures in most ITC areas to provide useful guidance.
1. Over-confidence:
About 90% of car drivers believe they are above average in driving ability; yet we know that only half are. But, even when you explain this logical anomaly to a large group, it’s entirely unlikely that anyone will re-evaluate his/her own driving ability.
Over-confidence, Thaler says, induces people to make forecasts that are bolder than they should be. There’s an age-difference here also – young people tend to be more over-confident.
2. Optimism:
Of course optimism is built into government statistical forecasts as a matter of course, as it is in businesses promoting the size of markets or the social and economic benefits of technological developments.
But even with private-sector forecasting, companies or trade organizations invariably show a high degree of wishful thinking.
There’s an old adage: “To the man with a hammer, every problem looks like a nail,” and this seems to fit rather well here also. People tend to make their judgment of the problems effecting the future in terms of the solutions they are able to offer.
In your area of expertise, you will usually forecast more optimistically than most and have higher levels of confidence in your judgment. The corollary (which Thaler didn’t touch on) is that you’ll also tend to down-value the solutions offered by others.
3. False consensus:
This factor was more responsible for the Y2K problems and the tech-wreck than all others combined.
When computers first appeared on desktops, two types of office workers immediately reaped benefits: accountants with their calculating spreadsheets and journalists who were suddenly able to make last minute changes to copy.
Journalists could see no need for a printer if keystrokes could be electronically injected into the photo typesetter, and they enthusiastically promoted their new toys in the media. This led directly to the 1975 Business Week prediction of the paperless office – a fallacy that lasted 25 years.
And, since accountants held the company purse-strings, computer sales took off because they also exaggerated the (then) commercial value of PCs to everyone.
4. Curse of knowledge:
Thaler’s point here is that we take for granted what we already know, and we can’t imagine that others don’t think the same way. This differs from false consensus because it colors the background of our thinking (our ability to judge) rather than the foreground.
Through nature and nurture, every person’s problem-solving faculties have evolved in different ways, yet we assume that any logical person should see what we see.
5. Status quo resistance:
This simply means what it says. Most people are resistant to change – even those at the leading edge who aspire to be fashion leaders. People are only willing to accept radical change to a limited degree – and then only in limited areas in their lives.
Stewart Fist (fist@ozemail.com.au) is an Australia-based, award-winning journalist and columnist, and author of The Informatics Handbook
# posted by MiDBA @ 10/23/2004 03:00:00 PM 
