Archive for April 3rd, 2014

Expected Unknowns

Nouriel Roubini has a short article up at Project Syndicate on The Changing Face of Global Risk, replacing the top six dangers of recent years with an equal number of new ones. There’s nothing remarkably implausible about it, but neither is it irresistibly convincing.

This type of forecast, were it reliable, would be of inestimable value. To some considerable degree it is simply inescapable, since there must always be default expectations (of the kind occasionally formalized as Bayesian priors). When specific probability-weighted predictions are not made, future-sensitive agents do not fall back upon poised skepticism — such Pyrrhonism is a philosophico-mystical attainment of extreme rarity. Instead, presumed outcomes are projected out of sheer inertia, whether as perpetuation of the status quo, or the mechanical extrapolation of existing trends. It takes only a moment of reflection to recognize that such tacit forecasts are at least as precarious as their more elaborate alternatives. Their only recommendation is an irrational mental economy, which would find in the least-effort of cognition some analogy with the superficially equivalent (but in this case informative) principle in nature.

Large-scale forecasting cannot be eschewed, but there are obvious reasons why it cannot be greatly trusted. It has no definite methods (relying for its credibility on hazy reputational capital). Its objects are complex, chaotic, and — once again — poorly defined. It has a restricted time frame, appropriate to gradually emerging developments constrained (to some degree) by historical precedent, but necessarily inadequate to radical innovation and to sudden, rapidly evolving events. The combination of these various blindnesses with a high-impact chance event produces the nightmare of the forecasters — (Nassim Nicholas Taleb’s) black swan.

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April 3, 2014admin 11 Comments »