Where Superforecasters Start
How can you improve your forecasting? One of Superforecasting‘s most useful principles is “outside first.” Suppose you have a lot of details about the Renzetti family, and you’re trying to guess whether it owns a pet. It’s tempting to dwell on the details, but:
The first thing [superforecasters] would do is find out what percentage of American households own a pet.
Statisticians call that the base rate – how common something is within a broader class. Daniel Kahneman has a much more evocative visual term for it. He calls it the “outside view” – in contrast to the “inside view” which is the specifics of a particular case. A few minutes with Google tells me about 62% of American households own pets. That’s the outside view here… Then I will turn to the inside view – all those details about the Renzettis – and use them to adjust that initial 62% up or down.
It’s natural to be drawn to the inside view. It’s usually concrete and filled with engaging detail we can use to craft a story about what’s going on. The outside view is typically abstract, bare, and doesn’t lend itself readily to storytelling.
As far as I recall, I’ve yet to lose a bet I publicly blogged. What’s my secret? I doggedly take the outside view. When long-run trends say X, and the “latest news” says Y, I go with X. When Democrats won big in 2008, I saw good luck, not a new political regime. That’s why, in 2009, I bet my former co-blogger Arnold Kling that the Republicans would regain control of one branch of the federal government by 2017. I won in 2010. During the Great Recession, I saw a bad business cycle, not a “new normal.” That why, in 2013, I bet Tyler Cowen that unemployment will fall below 5% by 2033. I am very close to winning already. When anyone forecasts any specific major disaster, I scoff. Disasters do happen, but almost all specific predictions of major disasters do not come to pass. And that’s why I am eager to bet against such predictions.
I sometimes joke that “news melts your brain.” What I really mean is that news amplifies our misguided impulse to take the inside view of things. To be a superforecaster, of course, you have to use the news to tweak the outside view. But most people would be better forecasters if they ditched the news and relied on base rates alone.
The post appeared first on Econlib.