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Transcript of 1 The Fortune Sellers The scholarly six. 2 Presentation Outline David The second oldest profession...
1
The Fortune Sellers
The scholarly six
2
Presentation Outline
David The second oldest profession When chaos rains
Aaron The dismal scientists The market gurus
Noyan Checking the “unchecked population” Science fact and fiction
Doug The futurists Corporate chaos The certainty of living in an uncertain world
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The Second Oldest Profession
What will the future bring? Cause of insecurity for all
Prognostication pervades many industries Economics Weather Financial services Demography Technology Futurists Business planning Fortune-telling
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Prognostication
Based upon deterministic thinkingFuture events unfold according to certain
rules and patterns that determine their course
Contrary: chaos and complexity theoriesHistory does not repeat itselfNo historical patterns exist to carve well-
marked trails into the future
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Erroneous Forecasting
“Forecasting is not a respectable human activity and not worthwhile beyond the shortest of periods” – Peter Drucker
Prediction industry is rife with error It is rare to find a prognosticator with a proven,
consistent track record Accurate prediction of singular major events
balance with poor long-term record
Situational bias obscures view of future
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Hazards of Faulty Predictions
Humans are a gullible lot Vulnerable to being duped by experts’ predictions
regardless of their track record It’s inherently easy for us to believe, and harder to
doubt or critically evaluate Faulty predictions cause needless anxiety
Doom-and-gloom forecasts succeed through sensationalism
Banking on faulty predictions ‘Voodoo economics’ – Reagan’s tax cuts and
economic stimulation caused deficit to increase by threefold in 8 years
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The Point
The Fortune Sellers discusses how to select nuggets of valuable future advice from the wealth of erroneous future predictions
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The Weather is Great
Weather forecasting has existed for thousands of years, because of the dramatic impact of weather on our lives
Historically, predicting the weather was more an art than science Folklore, astrology, almanacs Difficult to measure weather-related variables prior
to advent of radar and computers Now… In addition to government agencies
(such as NWS, NOAA), weather forecasting is a $300 million industry annually
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Partly Cloudy With Chance of Sun
The Butterfly Effect A butterfly in Amazon beating its
wings can dramatically alter weather
Fundamental issues in weather forecasting Laws governing weather are
volatile and amplify slight changes Difficult to specify initial conditions
upon which to extrapolate using such laws and models
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Chaos Rains
Noisy, nonlinear nature of weather Described by chaos theory: system is highly
sensitive to initial conditions and slight variations Longer-term forecasts suffer from ‘snowball effect’ Challenge with short-term is to get initial conditions correct
Modern weather forecasting is the most successful of those discussed in book Built upon proven laws of nature Accurate predictions for the very short-term future
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The Dismal Scientists
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Why Dismal?
An Essay on the Principle of Population (1798)
Very poor track recordFailure to foresee turning points
1987 stock market crash
Thomas Malthus
“Economists have forecasted nine of the last five recessions”
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Who are they?
Social scientists with dollar signs148,000 Economists working in:
GovernmentFederal ReserveCouncil of Economic Advisors (CEA)Congressional Budget Office (CBO)
Private SectorMedia
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Methodologies
Subjective Judgment Computer Models
1. Create Theory
2. Tweak model to validate theory using historical data
3. Predict the future!
Economic Religion
“For every economist, there is an equal and opposite economist”
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Misleading Indicators
Economists cannot predict the turning points
Accuracy drops with lead timeForecast skill is as good as guessingNo consistent skill by school or
statistic
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More Misleading Indicators
Sophistication offers no improvementPsychological biasConsensus offer no improvementNo skill improvement
“The problem with macro forecasting is that no one can do it” – Michael Evans
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Complex Systems
No governing natural lawsCannot be dissected into componentsHighly interconnectedPredictability and turmoilAdapt and evolveNo fixed cycles
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Pseudo Science
Data is scant and erroneousCrude approximations gathered
through surveys76% of theoretical articles found to
have no supporting dataTheories developed in a vacuumRational Assumption
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Negative Impacts
Political promisesFaulty decision making by
policymakers and long term business planners
Anxiety from doomsday predictions
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Self-Inflicted Wounds
Prediction undermines Economist’ credibility
Excessive belief in forecasting abilityNo more deterministic theories and
embrace complexityIncorporate the scientific method
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The Market Gurus
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The Market
Stock prices and corporate earnings are random
Part of the economic system3% of stock price variance correlated
to historic priceBear vs. Bull prediction
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Types of Analysts
Technicians Use historical stock prices “Buy low, sell high” Look for patterns and trends (Rorschach) Astrology
Fundamentalist1. Estimate Value
2. Determine current market value
3. Assume market will reach value equilibrium
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Efficient Market Hypothesis
3 Versions1. Strong
The market knows everything
2. Semi-Strong Market knows all published information
3. Weak No prediction based on historical share price
More applicable to Fortune 100
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15 Minutes of Fame
1,000’s of simultaneous predictionsChance allows for a few accurate
callsNo consist accurate calls1 out 108 beat the marketExcept Peter Lynch
Avoid the known zone
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The Value Line Myth
Over 100,000 subscribers pay $535Predicts 1,800 stocks by grouping
into 5 groups based on performance
•Grouped by risk which will guarantee higher returns
•Self fulfilling prophecy through influence
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Market Truth
Don’t confuse skill with luckAvoid market timersInvest wisely, hold long term stocks
through bull and bear marketsAvoid “permabears”Diversify!
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Checking the “Unchecked Population”
The Ice Age Cometh
Global Famine
Societal Collapse
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Population Forecasting
Forecasts are needed: By public sector to determine future need
for municipal requirementsBy governments to plan for the funding of
social programsBy corporations to determine future
product demand and store locationsWrong estimations Big problems
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Population Predictability
Life Expectancy 200,000 years from
25 to 47 100 years from
47 to 77
Population Beyond the limits is
the question
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Methodology
Cohort Component Model:
Future Population = Current Population + Births – Deaths + Net Immigration
Births & Deaths & Migrations
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Reliability of Forecasting
Forecasts from already existing cohorts are accurate
Forecasts of population counts are more reliable than growth rates
Steady growth allow for greater forecast accuracy
Accuracy is less dependable for rapidly growing populations
Accuracy is higher for larger geographic areas
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Predictions
Malthusian Prediction “Population, when unchecked, increases
in a geometrical ratio, while subsistence increase only in an arithmetical ratio.”
The Club of RomeThe Limits to Growth
Environmental IssuesGlobal warming
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Science Fact and Fiction
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“The Dark Art”
Analytic tools Delphi Method
“A brainstorming session with a panel of experts
S-Curve
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Promises
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Out of the Blue
Telephone Western Union memo, 1876: “This 'telephone' has too many
shortcomings to be seriously considered as a means of communication.”
Computers Ken Olson, president of Digital Equipment Corp. 1977: “There
is no reason anyone would want a computer in their home.”
Beatles Decca executive, 1962: “We don't like their sound. Groups of
guitars are on the way out.”
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Uncertainties in Technological Evolution
Technological Lock-in
Creative destruction
Technological synergies
Unworkable Concepts
Unknown applications
Unproved Value
Chance event
A few successfultechnologies
Ten millions of research projects
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The FuturistsPredicting Societal Change
Chapter 7
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Infirm Foundations
“Forecasting is not a respectable human activity” – Peter Drucker
Society is an ultra-complex system Everything that affects society is unpredictable -
Therefore, societal change is unpredictable
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Infirm Foundations
Karl Popper Introduced the notion of society as
an unpredictable complex system in 1930s
He said “a society does learn, in so far as it is partially conditioned by its past”
Adamant that scientific predictions are impossible in social science
Unknown initial conditions No natural laws to govern behavior Chance and accident
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Popper’s Corollary Principles
History does not repeat itself Major social trends, movements, and
revolutions surprise those closest to the events
Social theories are necessarily weak Social predictions are subjective Social predictions tend to be wrong Social science?
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The Newtonian Socialists
Argument: If Newton can predict the paths of planets, they thought they could predict social evolutionMillMarx
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Utopia to Techno-Totalitarianism
Utopia Technology is the key to Utopia Edward Bellamy’s Vision
Some predictions prescient Others just were just wishful thinking
Utopian optimism dwindled after WWI
Techno-Totalitarianism Technology runs amok Wars more efficient 1984
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Futurology
There is no single future – the objective becomes to identify and describe useful rang of alternatives
We can see those alternative futures
We can influence the future We have a moral obligation to
anticipate and influence the future
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Examples of Futurists
Ford HorsesKeynes TreatyFreud ReligionChurchhill 50 years henceToffler Dead wrongTrend Spotters
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An Excuse to do the Inexcusable
The tyranny of prophecyHitlerLeninMaoManifest DestinyDomino Theory
Must avoid ignoranceScientific bigotry
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Corporate ChaosPlanning for the Future
Chapter 8
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The Era of Planning
General ElectricA corporate planning
department with 193 planners
The U.S. governmentPlanning Programming-
Budgeting System (PPBS) Boston Consulting Group
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Predicting the Unpredictable
Everything a planner would like to know about the future is unpredictable
Organizations are also complex systems No way to know how an organization
works
No durable laws in management science
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The Illusion of Control
The illusion is that anyone could master the dynamic and detailed complexity of an organization from the top
Organizations have the capability to achieve great things on their own Adapt to change in the environment Innovation and creativity come naturally Self-organization enables organizations
at their lowest levels to response to emerging threats
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The Future is totally unpredictable
The Future Does Not Exist
The Present
Future Possibilities Bounded By PresentRealities
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Thriving in the Future
Self-organizationIntelligenceNatural reflexesMutationSymbiosisCompetitive challengesLeadership
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The Certainty of Living in an Uncertain World
Only fools, liars, and charlatans predict…
Chapter 9
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The Only Certainty
Chaos pervadesComplexity rulesThe only certainty is that
we are destined to live in an unpredictable world filled with uncertainty
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How to Cope
Think CriticallyFirst reaction to any forecast should
be skepticismBased on hard science?How sound are the methods?Credible credentials?Proven track record? Influenced by my own beliefs or wishes?
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Que Sera, Sera?
We are better able to influence than predict the future
Uncertainty, luck, and chance events will play a part in our lives
Don’t make a right decision, work to make your decision right