Why Make Predictions?

"Those who have knowledge don't predict.  Those who predict don't have knowledge." ~ Lau Tzu

What predictions are you (and others) making for 2010?  Will stock prices be higher or lower by the end of the year?  What events will transpire to shape your financial picture and overall life in the next year?  In the next decade?   Does your information bias draw your attention (or make you disregard) certain predictions over others?  Is it possible to make predictions and/or financial plans in absence of preconceived notions? 

Perhaps the most prudent question to ask is "Why make predictions at all?"  Is it simply a means of removing uncertainty?  Do we make predictions to see if they will come true or do we make plans based upon them?

To extend on our year-end post on reflection; to keep the mind open; and to embrace change, we begin a new decade with the realization that humans (you) are terrible at making predictions!

"Freedom from the desire for the answer is essential to the understanding of a problem." ~ Jiddu Krishnamurti

The temptation to make predictions, however, is quite difficult to resist.  Making predictions is a behavior deriving from the desire for control, which, in itself, is a derivative of the fear of uncertainty.  Unless you were given a frontal lobotomy, the frontal lobe of your brain will naturally and continually function to make plans for (and predictions of) your future.  Since a frontal lobotomy would blunt your emotions and personality, your best means of managing your miscalculations is to be aware of your own nature and, hence, to anticipate it!

To begin the awareness and anticipation of your desire to make predictions, and of your track record for making them, consider some information that is commonly known as well as some information about yourself and your life that only you know.  For greater perspective, consider events and evolutions over the past decade.

In 1999, would you have predicted the following to occur over the next decade, the 2000's? 

• An average annualized negative return of -0.9% for stocks?
• NASDAQ 5000 turning into 1200, back up to 2900, back down to 1300, then up to 2200?
• The Great Recession?
• A device (iPod) that could store thousands of songs?  The Blackberry, iPhone, cell phones that take pictures, blogs, or Twitter?
• The path of your personal relationships, career direction, financial status, and overall life perspective?
• How you would remain discontented even after all you have gained?
• How you could survive traumatic events?
• How change can provide opportunity?

Humans are not only poor at predicting events, we are also terrible at predicting our own emotions as they relate to the events.  Among the greatest things that transpired over the past 10 years, how many did you foresee?  Had you known they would occur, would you have accurately predicted how happy they would make you?  Among those terrible things that transpired, how many did you foresee?  Had you known they would occur, would you have imagined your amazing ability to adapt to (and overcome) these terrible things?  Use these memories and your emotional reactions to them as reminders that the future is difficult to foresee and control, especially those things that are among the very best and the very worst of happenings.  For this reason, it is important to keep an open mind to unplanned opportunities and to realize that you can adapt to even the worst of environments.

"As for the future, your task is not to foresee it, but enable it." Antoine de Saint-Exupery

Personally, I believe it to be prudent to embrace the unknown, yet, as always, there remains a case for balance:

• Planning is healthy; but following plans without openness to change has its perils. Along the path to your chosen destination, it is likely that other choices will be presented to you.  If, for example, you plan and plot a course and hyper-intentionally remain focused only on the destination, you may miss the opportunities that you did not plan for or predict.  Often these unforeseen opportunities offer the greatest potential for growth and success in your endeavors.
• Understand the limitations of desire for control:  Given the reminder and acceptance that your power to predict or to make things happen is not as great as you think, you are paradoxically given more power to let things happen -- to enable opportunities.
• You have absolute power to choose your course and your destination; but you do not have absolute power to maintain a planned course or to arrive at your destination of choice.
• Know yourself first -- external knowledge follows: Success at financial matters is not necessarily a function of knowledge of financial matters.  Success at almost any endeavor is enhanced or even created by self-knowledge.   

In summary, if you know yourself, you are likely to be more comfortable with the unknown, and hence reduce or remove the temptation to make predictions, which is a derivative behavior of the desire for control and a result of anxieties produced by the frontal lobe of your brain.  If there is to be focus on given life pursuits, it is best to spend time and energy on those things that are well within your control.  In financial terminology, the greatest return on investment (ROI) is time spent learning more about yourself.  As a result, you are more likely to spend time and energy on meaningful pursuits, which are self-feeding and reinforcing behaviors that produce more energy and diminishes the desire to make predictions.

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Related:

Beware of Confirmation Bias

Where to Invest 2010

We are all 'Naive Scientists'

Quotes on the Unknown, the Uncertain & the Hidden

Comments

[Making a Will]

I think that you have to make predictions, or at least make assumptions, in order to plan. It is difficult to make such choices but you cannot plan and act if you you do not do so. Thaks for teh thoughts above - they are good food for thought. Regards, john

[Kent @ The Financial Philosopher]

M.a.W: I agree with you in the regard that there are no absolutes. To some degree, predictions are necessary for prudent planning decisions. It is important, however, to understand why the prediction is being made, what emotions and/or preconceptions influenced the prediction, and what kind of action will be taken upon the prediction.

Thanks for commenting...

Kent