Does it make sense to you that the best risk managers are the ones who are happy to change their mind?
“When my information changes, I alter my conclusions. What do you do, Sir?”
This quotation, attributed to John Maynard Keynes, arguably the most influential macro-economist in history got me thinking when reading another fabulous article written by Tim Harford, best known as “The Undercover Economist” in the FT Weekend magazine.
Tim was talking about forecasting, and what makes for ‘super-forecasting’, i.e. a system involving multiple people with the sole purpose of getting predictions about the future as correct as possible (as opposed to promoting themselves, marketing a product, making a political point or the myriad other reasons why people try to predict the future.
The advice, informed by the ‘Good Judgment Project’ – an massive experiment in forecasting being run by some people in the US – resonated given the many hundreds of conversations I’ve had professionally with people who spend their life trying to make good judgments about potential future situations (risks).
The normal stuff is there, i.e:
· Use relevant comparisons as a starting point if they exist
· Historical trends can help – look at the data if they exist but don’t forecast solely on this
· Experts disagree – listen to lots of them, then pick a mid-point to inform the ongoing picture
· When there are multiple variables you can understand, build a model
· Known biases exists and can be allowed for – take them into account
But the part that intrigued me relates to the John Maynard Keynes quote. Our formal education teaches us to be systematic, precise and to seek correctness and certainty. The list above suggests that the people who would be good at this stuff are ones who like data and detail, yet the over-riding finding of researches is that the people who makes the best forecasts (i.e. the ones who get superior results when they have acted on their judgments) are the ones that are ‘actively open-minded’; people who seek out fresh evidence and aren’t afraid to change their mind in the face of it.
An interesting point for leaders and decision-makers everywhere this morning!