The Fortune Sellers

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

3. 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

4. Prognostication • Based upon deterministic thinking • Future events unfold according to certain rules and patterns that determine their course • Contrary: chaos and complexity theories • History does not repeat itself • No historical patterns exist to carve well-marked trails into the future

5. 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

6. 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

7. The Point The Fortune Sellers discusses how to select nuggets of valuable future advice from the wealth of erroneous future predictions

8. 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

9. 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

10. 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

11. The Dismal Scientists

12. Why Dismal? Thomas Malthus “Economists have forecasted nine of the last five recessions” An Essay on the Principle of Population (1798) Very poor track record Failure to foresee turning points • 1987 stock market crash

13. Who are they? Social scientists with dollar signs 148,000 Economists working in: • Government • Federal Reserve • Council of Economic Advisors (CEA) • Congressional Budget Office (CBO) • Private Sector • Media

14. Methodologies “For every economist, there is an equal and opposite economist” Subjective Judgment Computer Models • Create Theory • Tweak model to validate theory using historical data • Predict the future! Economic Religion

15. Misleading Indicators Economists cannot predict the turning points Accuracy drops with lead time Forecast skill is as good as guessing No consistent skill by school or statistic

16. More Misleading Indicators “The problem with macro forecasting is that no one can do it” – Michael Evans Sophistication offers no improvement Psychological bias Consensus offer no improvement No skill improvement

17. Complex Systems No governing natural laws Cannot be dissected into components Highly interconnected Predictability and turmoil Adapt and evolve No fixed cycles

18. Pseudo Science Data is scant and erroneous Crude approximations gathered through surveys 76% of theoretical articles found to have no supporting data Theories developed in a vacuum Rational Assumption

19. Negative Impacts Political promises Faulty decision making by policymakers and long term business planners Anxiety from doomsday predictions

20. Self-Inflicted Wounds Prediction undermines Economist’ credibility Excessive belief in forecasting ability No more deterministic theories and embrace complexity Incorporate the scientific method

21. The Market Gurus

22. The Market Stock prices and corporate earnings are random Part of the economic system 3% of stock price variance correlated to historic price Bear vs. Bull prediction

23. Types of Analysts Technicians • Use historical stock prices • “Buy low, sell high” • Look for patterns and trends (Rorschach) • Astrology Fundamentalist • Estimate Value • Determine current market value • Assume market will reach value equilibrium

24. Efficient Market Hypothesis 3 Versions • Strong • The market knows everything • Semi-Strong • Market knows all published information • Weak • No prediction based on historical share price More applicable to Fortune 100

25. 15 Minutes of Fame 1,000’s of simultaneous predictions Chance allows for a few accurate calls No consist accurate calls 1 out 108 beat the market Except Peter Lynch • Avoid the known zone

26. The Value Line Myth • Grouped by risk which will guarantee higher returns • Self fulfilling prophecy through influence Over 100,000 subscribers pay $535 Predicts 1,800 stocks by grouping into 5 groups based on performance

27. Market Truth Don’t confuse skill with luck Avoid market timers Invest wisely, hold long term stocks through bull and bear markets Avoid “permabears” Diversify!

28. Checking the “Unchecked Population” • The Ice Age Cometh • Global Famine • Societal Collapse

29. Population Forecasting • Forecasts are needed: • By public sector to determine future need for municipal requirements • By governments to plan for the funding of social programs • By corporations to determine future product demand and store locations • Wrong estimations  Big problems

30. Population Predictability • Life Expectancy • 200,000 years from 25 to 47 • 100 years from 47 to 77 • Population • Beyond the limits is the question

31. Methodology • Cohort Component Model: Future Population = Current Population + Births – Deaths + Net Immigration • Births & Deaths & Migrations

32. 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

33. Predictions • Malthusian Prediction • “Population, when unchecked, increases in a geometrical ratio, while subsistence increase only in an arithmetical ratio.” • The Club of Rome • The Limits to Growth • Environmental Issues • Global warming

34. Science Fact and Fiction

35. “The Dark Art” • Analytic tools • Delphi Method • “A brainstorming session with a panel of experts • S-Curve

36. Promises

37. 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.”

38. Uncertainties in Technological Evolution Ten millions of research projects Unworkable Concepts Unknown applications Unproved Value Chance event Technological synergies Creative destruction Technological Lock-in A few successful technologies

39. Chapter 7 The Futurists Predicting Societal Change

40. 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

41. 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

42. 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?

43. The Newtonian Socialists • Argument: If Newton can predict the paths of planets, they thought they could predict social evolution • Mill • Marx

44. 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

45. 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

46. Examples of Futurists • Ford  Horses • Keynes  Treaty • Freud  Religion • Churchhill  50 years hence • Toffler  Dead wrong • Trend Spotters

47. An Excuse to do the Inexcusable • The tyranny of prophecy • Hitler • Lenin • Mao • Manifest Destiny • Domino Theory • Must avoid ignorance • Scientific bigotry

48. Chapter 8 Corporate Chaos Planning for the Future

49. The Era of Planning • General Electric • A corporate planning department with 193 planners • The U.S. government • Planning Programming-Budgeting System (PPBS) • Boston Consulting Group

50. 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