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Many businesses make their decision on some form of prediction of the future. This prediction, usually, is made of some kind of reliance of the past. In fact, I just spent the last few weeks in my AGSM MBA studying about ways to predict the future, based on the past.
Today, I was reading a manifesto titled: “Ending the Illusion of Control [Let’s Kick This Bad Forecasting Habit]“. In it, the writers claim that the reliance people and businesses have on predictions in general and specifically economic predictions could be destructive. They present a list of empirical evidence collected through many studies replicated by others, regarding the use of forecasting and then, they present three pieces of advice:
- Dispel the illusion of our ability to produce accurate forecasts.
- Concentrate on uncertainty.
- Evaluate forecasters, and hold them responsible.
All of this is sound advice and should be followed. But, I am afraid there is one problem. Some of them are just not practical. Like many other phenomena we hear about lately, people reliance on predictions stems from their irrationality. And that irrationally is not because people are stupid or incompetent. It is because they are people. Like the writers of “Billion Dollar Lessons” repeat again and again in their book: awareness is not enough. Just saying that we should: “accept that uncertainty exists” is not enough. Even if we explain to people, rationally, what the problems with ignoring uncertainty is, they will probably won’t be able to take it into their calculations. It is just the way their brain works.
So, what can be the solution? I think part of the solution can be found in the process. If we create processes that take irrationality into account, and makes people, for example, acknowledge the existence of uncertainty as part of the decision process, we can maybe overcome this problem.
Or take for example two points from the list of evidence presented in the manifesto: 1. “Forecasts made by experts are no more accurate than those of knowledgeable individuals”. 2. “Averaging the predictions of several individuals usually improves forecasting accuracy”. This is a well known fact from an abundance of research. But still, the advice of experts is sought after and is the base for many business decisions. But, if the decision making process will enforce taking into account a number of estimates in addition to that of the expert, by forcing people to bring more estimates, maybe we can start to overcome this problem.
So, how do the processes in your company, take into account the problem of reliance on predictions?