Remember the Brexit crash? Probably not, as it was all over in a flash, and markets are now well above their pre Brexit level.
All of this happened despite predictions of woe by high profile “experts” who looked and sounded good in short grabs on the television and in the press. They had the ability (or more accurately “seemed” to have the ability) to cut through all the complexities and bundle everything into a few well turned phrases.
However, these forecasts of doom have joined the long list of failed forecasts.
Forecasting has become big business, but unfortunately hardly anybody tracks the accuracy of these forecasts.
What’s more, many of the failed forecasts have been made by hedgehogs rather than foxes (more below).
The terms “hedgehogs” and “foxes” are used to describe two different ways of thinking and forecasting.
The “hedgehogs” are big picture people, who focus on a limited number of issues when making their forecasts. They typically look good and speak well on television and radio. They are masters of the quick soundbite and speak with great conviction and supreme confidence. They are great entertainment value and media outlets gravitate towards them.
“Foxes” are a different breed. They dig deep into the detail and look at a lot of factors before making a forecast. They are nerdish and can quickly bore the pants of viewers or listeners. No wonder media outlets don’t use them.
Tetlock and Gardner, in their book, Superforecasting, The Art and Science of Prediction, report on many years tracking the forecasting success of a big number of forecasters. The results? None were very good, but “foxes” were much better than “hedgehogs”.
Now I have never seen a hedgehog, but they look pretty and cuddly. I have seen many foxes, though, and they are smart, cunning hunters. If I was a hedgehog, I certainly wouldn’t want a fox on my tail.
Next time you see some expert on TV holding forth on the state of the world, just ask yourself whether that person is a fox or a hedgehog.
You can find more information on Brexit in our July 2016 Newsletter.
