Prepare for the Onslaught of Predictions

This is that time of the year when we will see magazines, blogs, thought leaders and their ilk polish their crystal balls, look deep into it and make predictions. Predictions that range from big to extremely big, outrageous to ridiculous, all trying to outdo others in clairvoyance. The more ridiculous the prediction higher the number of page views, sharing and Retweets. And more such a prediction is shared the more believable it comes, even becoming a foregone conclusion.

Popularity and pervasiveness alone come to define the quality of predictions, with no one stopping to check the likelihood of the event or the reasoning of the guru making the prediction. Never mind none of the predictions made in the past year or the years before borne out to be true. There is is always weasel language to get out of it. Or who remembers, who checks or who cares?

This year you may do well to simply ignore all such predictions. But I recommend a better options. Before you read any of the predictions read this recent book on science of prediction by  Berkeley and Wharton professors titled, Superforecasting. The concepts and methods explained in this excellent read are meant to help you make better predictions but they also help you evaluate predictions from others.

Armed with concepts like understanding of base rates, conditionals, likelihoods and outside-in process you can see how most predictions can be ignored regardless of pedigree of who made it, their popularity or even if one or two turn out to be true due to sheer luck.

Take for example the following prediction from Fortine magazine,

Apple Will Buy Tesla…

Apple has announced plans to build an electronic car, targeting 2019. Apple could dramatically accelerate this timetable by buying Tesla  TSLA . With over $200 billion cash on hand, the iPhone-maker has more-than ample resources to absorb the purchase, especially now that some of the bloom has come off Tesla’s once-rosy stock. In addition to its automobile know-how, Apple gets access to Tesla’s battery technology, which CEO Elon Musk claims can help change “the entire energy infrastructure of the world.” Of course, Apple would also get Musk—a worthy heir to Steve Jobs’ “think different” legacy and ideally suited to be Apple’s futurist, chief technologist and CEO-in-waiting.

You notice here there are no timelines so we have to assume this is meant for 2016. There is also no likelihood based metrics, only certainties – “Apple will acquire Tesla”. If Fortune magazine bothered to look at base rate for acquisitions by Apple in the past 5 years, there is none even close to the size of Tesla’s $30 market cap. Beats acquisition for $3 is one tenth of Tesla’s current market cap and it is not really about Apple’s launch of Apple music.

The biggest problem with this prediction is it is inside-out, it started with the idea and looked for specific aspects that will make the idea true without looking for what would make it false.  That is,

• Apple wanted to enter electric car business (we know this only from rumors)
• Apple has enough resources (base rate of M&A will show you really don’t need all the resources to make an acquisition)
• Tesla stock is looking attractive (neglecting the fact that despite current valuation Tesla owners will demand hefty premium if at all they want to sell)
• Apple gets access to Tesla’s battery tech (neglecting there are no other ways or options)
• Capping it all, getting Elon Musk as CEO in waiting for Apple (you can see the flaws here)

However the prediction is outrageous, sounds plausible and seems like something pundits and avid fans want it to be true. So this will get traction. But that does not  make it a solid prediction.

If you give even a cursory review of all the 2016 predictions you will see how woefully unrefined they are.