When you want to know what’s going to happen in the markets or in our increasingly complex future, it’s best to go to the experts to get the answer. Right?
A recent article in The Atlantic suggests that this may be the worst possible strategy. It doesn’t delve into the well-known problems that experts have had in predicting market twists and turns or even the movements of interest rates, much less the next recession. Instead, it looks at research which suggests that so-called “experts,” with decades of experience and deep knowledge in a subject, may be the worst sources of accurate predictions about any aspect of the future—and particularly in their own field.
One study looked at more than 80,000 predictions, many of them about the Soviet Union during the Cold War. It found that where experts declared that future events were impossible or nearly so, 15% actually occurred, nonetheless. When they declared events to be a sure thing, 25% of them failed to happen. When faced with their results, many of the experts doubled down on their predictions, instead of admitting flaws in their judgment.
Another study compiled a decade of yearly predictions about the value of the dollar against the euro, made by experts at 22 large international banks. Every year, the economist at every bank predicted what the exchange rate would be at the end of that year. Over ten years, the banking experts missed every single change of direction in the exchange rate, and in six of those ten years, the true exchange rate fell outside the entire range of all 22 forecasts.
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