• Choose a category
• All
• Classic-Fiction

By Root 1044 0

that common sense tells us we ought to be able to make are in fact impossible—for two reasons. First, common sense tells us that only one future will actually play out, and so it is natural to want to make specific predictions about it. In complex systems, however, which comprise most of our social and economic life, the best we can hope for is to reliably estimate the probabilities with which certain kinds of events will occur. Second, common sense also demands that we ignore the many uninteresting, unimportant predictions that we could be making all the time, and focus on those outcomes that actually matter. In reality, however, there is no way to anticipate, even in principle, which events will be important in the future. Even worse, the black swan events that we most wish we could have predicted are not really events at all, but rather shorthand descriptions—“the French Revolution,” “the Internet,” “Hurricane Katrina,” “the global financial crisis”—of what are in reality whole swaths of history. Predicting black swans is therefore doubly hopeless, because until history has played out it’s impossible even to know what the relevant terms are.

It’s a sobering message. But just because we can’t make the kinds of predictions we’d like to make doesn’t mean that we can’t predict anything at all. As any good poker player can tell you, counting cards won’t tell you exactly which card is going to show up next, but by knowing the odds better than your opponents you can still make a lot of money over time by placing more informed bets, and winning more often than you lose.1 And even for outcomes that truly can’t be predicted with any reliability whatsoever, just knowing the limits of what’s possible can still be helpful—because it forces us to change the way we plan. So what kinds of predictions can we make, and how can we make them as accurately as possible? And how should we change the way we think about planning—in politics, business, policy, marketing, and management—to accommodate the understanding that some predictions cannot be made at all? These questions may seem distant from the kinds of issues and puzzles that we grapple with on an everyday basis, but one way or another—through their influence on the firms we work for, or the economy at large, or the issues that we read about every day in the newspaper—they affect us all.

WHAT CAN WE PREDICT?

To oversimplify somewhat, there are two kinds of events that arise in complex social systems—events that conform to some stable historical pattern, and events that do not—and it is only the first kind about which we can make reliable predictions. As I discussed in the previous chapter, even for these events we can’t predict any particular outcome any more than we can predict the outcome of any particular die roll. But as long as we can gather enough data on their past behavior, we can do a reasonable job of predicting probabilities, and that can be enough for many purposes.

Every year, for example, each of us may or may not be unlucky enough to catch the flu. The best anyone can predict is that in any given season we would have some probability of getting sick. Because there are so many of us, however, and because seasonal influenza trends are relatively consistent from year to year, drug companies can do a reasonable job of anticipating how many flu shots they will need to ship to a given part of the world in a given month. Likewise, consumers with identical financial backgrounds may vary widely in their likelihood of defaulting on a credit card, depending on what is going on in their lives. But credit card companies can do a surprisingly good job of predicting aggregate default rates by paying attention to a range of socioeconomic, demographic, and behavioral variables. And Internet companies are increasingly taking advantage of the mountains of Web-browsing data generated by their users to predict the probability that a given user will click on a given search result, respond favorably to particular news story, or be swayed by a particular recommendation. As the political