Believable Predictions

Believable Predictions: Why don’t people act on predictions?, by Mark Chussil

Look at how quickly demand for light trucks and SUVs has crashed. It’s so bad, the iconic companies who depended on them as their lifeblood are actually in danger of insolvency.

No one could predict cheap fuel would end this Thursday or two Wednesdays ago or a week from Friday. Almost anyone could predict that the ride would end eventually. We metaphorically remember Humphrey Bogart, in the role of our conscience, warning “You’ll regret it. Maybe not today, maybe not tomorrow, but soon and for the rest of your life.”

The problem wasn’t that we couldn’t predict a day of reckoning would come. For years, for decades, there’s been more than enough public discussion about demand for fuel growing faster than supply. Reasonably informed laypeople knew that, and experts in industries and governments dependent on fuel costs absolutely would know that.

Apparently the problem was that we didn’t believe the predictions. If we did, we would have acted on them. Well, some companies did. They invested in developed high-mileage cars, they hedged their energy costs, maybe they even bought energy futures. Some governments did, and managed to push through mass-transit and green-building programs.

It’s tempting to blame [fill in your favorite pejorative] management for being [fill in your favorite shortcoming]. For the most part, though, smart, responsible, dedicated, ambitious people run companies and governments. People pretty much like you and me. So, why would people like you and me not believe predictions?

We usually point to culprits such as denial, overoptimism, wishful thinking, and short-term thinking. Short-term thinking does have some basis in rationality: I’d be crazy to sacrifice my bonus to make the business better after I’ve gone next year, and besides, you’re squeezing me for every nickel so we can keep the stock up and the boss happy (or the equivalent for elected officials). The others, though, just beg the question: why do smart, responsible, etc. people (like you and me) go into denial, get overoptimistic, and think wishfully?

I’m interested in your answers to that begged question. I’d also like to hear your stories about predictions believed and not believed.

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