Jaebong Son & John gastreich

1. Jaebong Son &John gastreich

2. The Second Oldest Profession

3. Predictable Future? History follows a certain pattern. • Determinism

4. FutureImperfection Economy • Complexity • Chaos Stock Market • SituationBias Weather Obscured by present conditions and trends

5. When Chaos Rains

6. Basic Assumption in Forecasting Weather Weather patterns regularly repeat themselves.

7. The Problems of Prediction • Nonlinear

8. The Problems of Prediction - Nonlinearity Interest of 12% on a constant basis Interest of 12 %on a compound basis Paid 10% of interest by mistake $100 for thirty years Cost the customer $60 Cost the customer $1,250 Nonlinear relationships cause variables to increase or decrease at more or less exponential rates.

9. The Problems of Prediction • Nonlinear • Chaos

10. The Problems of Prediction - Chaos B = 0.4 – 4A2 where A stands for the current temperature and B stands for the temperature one hour into the future. • The simulated temperature patterns in the figure never repeat themselves.

11. The Problems of Prediction – Butterfly Effect • Nonlinear Edward Lorenz • Chaos • ButterflyEffect

12. The Value of Weather Forecasting In order to make weather forecasters look good. Is the $4 billion spent each year worldwide on weather forecasting worth the investment without taking into account the problems mentioned above? Why did God create economist?

13. The Dismal Scientists Economists have forecast nine of the last five recessions.

14. Theory of General Equilibrium The economy is predictable.

15. The Economy as a Complex System Steven N. Durlauf • No Natural Laws Complex systems have no natural laws governing theirbehavior at either theirmicro-level (individual humans) or their macro-level (the economy).

16. The Economy as a Complex System • Cannot be Dissected • No Natural Laws Complex systems cannot be dissected into their components, because the systems arise from the numerous interactions among the components.

17. The Economy as a Complex System • Positive &Negative Feedback Loops • Cannot be Dissected • No Natural Laws Complex systems are so highly interconnected with numerous positive and negativefeedback loops that they often have counterintuitivecause-and-effect results.

18. The Economy as a Complex System • Self-Generated Turmoil • Positive &Negative Feedback Loops • Cannot be Dissected • No Natural Laws Complex systems exhibit periods of order and predictability, punctuated by unexpected moments of self-generated turmoil.

19. The Economy as a Complex System • Self-Generated Turmoil • Positive &Negative Feedback Loops • Cannot be Dissected • No Fixed Cycle • No Natural Laws Complex systems have no fixed cycles. = Histories do not repeat themselves.

20. The Economy as a Complex Adaptive System • AdaptionandEvolution • Self-Generated Turmoil • Positive &Negative Feedback Loops • Cannot be Dissected • No Fixed Cycle • No Natural Laws Complex adaptive systems adapt to their environments and evolve.

21. The Economy as a Nonlinear Complex Adaptive System • AdaptionandEvolution • Self-Generated Turmoil • Positive &Negative Feedback Loops • Cannot be Dissected Nonlinear • No Fixed Cycle • No Natural Laws The existence of these nonlinear relationships does not conform to the general principles of the theory of General Equilibrium.

22. The Economy as a Nonlinear Complex Adaptive System with Erroneous Data • AdaptionandEvolution • Self-Generated Turmoil • Positive &Negative Feedback Loops • Cannot be Dissected Nonlinear • No Fixed Cycle Erroneous Data • No Natural Laws • Economic data are scant and erroneous. • Questionable government survey data, false information from respondent, revised historical statistics.

23. Human as Irrational Actors Irrational Human • AdaptionandEvolution • Self-Generated Turmoil • Positive &Negative Feedback Loops • Cannot be Dissected Nonlinear • No Fixed Cycle Erroneous Data • No Natural Laws Robert Heilbroner“At the root of the economic matter lies man, but it is not man the ‘economic’ being, but man the psychological and social being, whom we understand only imperfectly.”

24. Recommendations from the Author • To remake economics into a much more scientific field, economists should: • Cast off deterministic economic theories and perspectives. • Start to study the economy as a complex system that is far more dynamic than the idea about the economy contained in today’s textbooks. • Look more to biological science than to physics for explanations of how the economy works, since the economy is made up of biological units.

25. Recommendations from the Author cont’d Economics must use the scientific method, which requires developing theories based on real-world observation and then testing them through ever more observation.

26. The Market Gurus The stock market is part of the economy and thus a complex system.

27. Speed Irrational Human • AdaptionandEvolution • Self-Generated Turmoil • Positive &Negative Feedback Loops • Cannot be Dissected Nonlinear • No Fixed Cycle Messiness of Data • No Natural Laws Speed Speed makes the stock market much more dynamic and complex than the economy

28. Irrational Herd Mentality & Mass Psychology Irrational Human • AdaptionandEvolution • Self-Generated Turmoil • Positive &Negative Feedback Loops Irrational HerdMentality & mass Psychology • Cannot be Dissected Nonlinear • No Fixed Cycle Messiness of Data • No Natural Laws Speed The stock market is clearly driven by irrational herd mentality and mass psychology: A psychological soup of fear, greed, hope, superstition, and a host of other emotions and motives.

29. The Random Walk Theory Technical Analysis(history of prices) Fundamental Analysis(future earnings, a discount rate) The random walk theory states that stock market prices evolve according to a random walk and thus the prices of the stock market cannot be predicted.

30. EMH and Irrationality of the Stock Market The irrational dimension of the stock market means that the EMH is at least partially flawed. • The Efficient Market Hypothesis (EMH) (1960s by Fama) • The stock market knows everything that is knowable about future corporate earnings and thus prices all stocks at their true values. • However, the market also responds to news events in a strange way. • The crash of the U.S. stock market in 1987

31. Lessons Learned • The only certain things in life are death and taxes. • Faulty assumptions must lead to wrong research conclusions. • A small mistake could lead to major errors. • Psychological bias affects predictions and research results. • Increased complexity degrades forecasting accuracy. • If possible, divide a problem into small pieces.

32. Checking the “Unchecked Population”

33. Gloom & Doom • The Ice Age Cometh • The End: The Imminent Ice Age and How We Can Stop It! (1988) • Ice ages are predictable • Spread rock dust over earth’s surface • Global Famine • Famine – 1975! (1967) • “Starvation will become widespread famine” • But, undernourished people declined from 942M to 786M (1970 – 1990) • Societal Collapse • Exponential pop. growth outstrip natural resources • Easter Island

34. Population Momentum & Predictability • Demographers still miss the turning points Total population is predictable for decades (U.S.)

35. World Population • Remained flat until 200 years ago Forecasts accurate for decades

36. County Populations Accuracy increases with size

37. Life Expectancy Death is predictable (U.S.)

38. Death Rate (U.S.) • Forecasters miss turning points Death rate easy to predict; little change

39. HIV Predictions Overstated Public Health Service – 85 experts

40. Unborn Difficult to Forecast • Demographers miss turning points 20-year forecasts are accurate for exist population

41. Contraceptives Strong predictor of fertility

42. Developing Countries Exponential growth only in developing countries

43. Immigration (U.S.) Bureau of Census underestimates numbers

44. Chapter 5 Conclusions • Nature abhors exponential growth & curbs it • Question: When & how? • 8 billion? • 10 billion? • More? • Future depends on uncertain forces • Global cooperation • Technology

45. Science Fact and Fiction

46. Mind-Boggling Leaps in Technology • Older generations have witnessed • Television • Radar • The laser • Atomic energy • Manned space travel • Younger generations have witnessed • Information technology • Genetic engineering

47. Technology Forecasting Evolution of Technology Forecasting

48. Flow of Technology Forecasting From organizations to media

49. World’s Largest Technology Forecaster Japanese government’s technology forecasting

50. Technology Forecasting Techniques “Useless in predicting the most significant events in the evolution of technology” • Brainstorming techniques • Delphi method • Nominal group process • Trend extrapolation techniques • S-curve • Trend analysis • Correlation analysis • Analytic techniques • Cross-impact analysis • Analytic hierarchy process • Relevance trees • Systems dynamics • Scenario development • Real-world situation analysis • Case study method • Lead-user analysis