On The Big Question
What is the big question? This:
- What will happen in the future?
Look around and see how many issues reduce to this—the weather, the stock market, politics, health. We all want to know what will happen next. And yet, outside a few limited areas, we have no fucking idea. We turn to soothsayers and pundits, whose predictions are no more accurate than a dart throwing chimp. (See Tetlock.) We watch Jim Cramer throw chairs and act like an idiot on CNBC, but we know that most stock pickers underperform the market. We read WebMD and wonder whether we’ll get Alzheimer’s.
Hume posed the question of how we can think our predictions of the future are any good. He concluded that we don’t have reason to think the future will be like the past. Of course, as a matter of fact, we do—and will continue to—think the future will be like the past. But that’s different than saying we have a reason to do this. (Compare: I throw good money after bad because of loss aversion; yet, I shouldn’t do this—it’s stupid.) His argument is pretty theoretical, but the basic intuition—that predicting the future is a mug’s game—still stands. More and more information comes our way, yet the odds of being right don’t get much better. Will Israel attack Iran? Will Russia turn off oil to Poland? Will China attack Taiwan? Fuck if I know. Let me ask my dart throwing chimp and get back to you.
I tend to think that prediction markets are the best hope, because they can aggregate a lot of very specific predictions. The danger is the “folly of herds”—the dark side of the “wisdom of crowds.” But as long as folks are independent (a big “if”), I’m optimistic that they can tell us something. Yesterday I watched the Seahawks game. Over at TradeSports, the prediction was that Chicago would win, which they did. And a large number of people thought the spread would be less than 3.5 points, which it was. Obviously, this doesn’t show dick—it’s one example. But it’s interesting to watch how often these markets get things right.
So, Will Hillary be the Democratic nominee? The wisdom of crowds puts the likelihood at 0.47 likely. Will the US attack Iran before the end of March? The wisdom of crowds says 0.09. Will Hamas recognize Israel? The crowd puts the likelihood at 0.07. More here.