Blog post

The Psychology of Prediction

By David M. Smith | September 02, 2009 | 2 Comments

According to one of my favorite philosophers, Yogi Berra, Its hard to predict, especially the future”. He’s right but it doesn’t stop many people from trying. In fact predicting the future is essential to many aspects of our lives – in business, and beyond. Many professionals have the need to accurately predict outcomes of the future to be successful in their jobs. And many have occupations where predicting the future actually is their job, one way or another. As an analyst at Gartner, I am of course a good example of this.

Some of this is common sense. Some is controversial. Some goes completely against what most think and against what people are taught even at organizations who train people to do predictive type jobs. But it works for me.

Here are my ten guiding principles for accurate prediction:

1. Care about being right. This sounds obvious but circumstances and other requirements often get in the way. Professionals whose job involves making predictions face pressures to have an opinion, no matter what, and to generate visibility. This can lead to quickly formed opinions and overstating and over hyping things. While these things may in fact need to be part of a strategy, they do not have to be the primary goal. Tempering such behavior by placing the goal of being right at a higher priority is one of the real keys to accurate prediction. You can’t be afraid to be wrong, but you can’t place being right at lower priority and expect to be good at predicting.

2. Be an “innumerate”. Be extremely skeptical of any numbers. Many believe that numbers don’t lie. They don’t of course, but people do. And they state the numbers that they want to state to make their case. And they get things confused. Numbers are more useful in looking back at history than in predicting (looking back at history is helpful and numbers can help). Be especially wary of survey data. Often the questions are poorly formed and the respondents not necessarily knowledgeable. There is no substitute for talking directly to people to make sure that you understand context and that they understand the question. And follow-up is possible.

3. Ask yourself “Why are they telling me this?” Understand the motivations of sources of information. Everyone you meet has some type of agenda. Sometimes it is truly to educate you, usually not. It is critical to understand what the source of information wants you to think to put the information into context.

4. Ask yourself “What would I do”? Put yourself in the shoes of the CEO or key decision maker of the entity if possible. This is a key tool to predicting how companies and organizations will behave. If the prediction is about that company, this is the major key. If it is more general, putting yourself in the shoes of multiples and playing out scenarios is helpful.

5. Recognize that most of the time, you will know less than your sources. The world is full of specialists. Depending on circumstance, you may know as much as your sources but there is almost always someone who is more of an expert than you. So you need to develop strategies for assessing the credibility and honesty of a source. A useful tactic is to lead a discussion towards an area in which you do know a lot and test the source’s honesty and credibility. This can help determine what weight to give the source

6. Don’t jump to conclusions. Whenever possible take your time. When pushed for an opinion, it is best to say “if I had to have an opinion I would lean towards x”, but not highlight these types of things as “predictions”.

7. Find “bubbles”, conventional thinking and poke at assumptions. Try to understand why most people have a certain belief and figure out what assumptions they have. Look for misunderstandings, confusion, motivations and social trends.

8. Get information you’re not supposed to have. Basic networking is essential to knowing your subject and to getting information you’re not supposed to have (Obviously those subject to “insider trading” types of issues need to tread carefully here). Listen for slip ups. Put the pieces together. Fill in the holes. Speculate.

9. “You’re only paranoid if you’re wrong”. Explore conspiracy theories. While they usually won’t be the prediction, the exercise of examining possible conspiracy theories often is fruitful. Remember At the very least there is bound to be some aspect of the theory that has some truth to it and may point the way towards a good prediction. However, it is far more likely that stupidity or laziness, rather than conspiracy, is the cause.

10. Constantly test, validate and refine. Every chance you get to talk to a person whose opinion you respect, test new theories. Every chance you talk to a source of information, test your theories and gauge their reactions. Be open to tweaks.

Some other principles that I always test against:

– Simple is better than complex
– People (especially politically oriented people) have to be able to declare victory
– Understand when there is “skin in the game” and when logical reasoning will not explain everything
– Fear and Greed are the ultimate forces driving everything

Note, I wrote this several years ago as part of an internal exercise here at Gartner. At the time, there wasn’t an appropriate mechanism to share this. Now, with our blogs, the time is right.
Enjoy and don’t be shy to comment.

The Gartner Blog Network provides an opportunity for Gartner analysts to test ideas and move research forward. Because the content posted by Gartner analysts on this site does not undergo our standard editorial review, all comments or opinions expressed hereunder are those of the individual contributors and do not represent the views of Gartner, Inc. or its management.

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  • Mills Ripley says:

    Excellent advice, David. Watching and reading the news over the past few days leads me to wish that news organizations would heed it as well.

    Consider CNN and the 9/11 Coast Guard episode on the Potomac. “Shots were fired.” No, they were not. In a 24 hour news cycle, do news organizations care about being right or about being first? Which takes priority, really?

    Innumerate? Hardly. Not a day goes by without reference to “a new scientific study” linking “X” with “Y”; based on “data” gathered by “researchers”, so it’s got to be true. The statistical ignorance of those who report such nonsense is staggering.

    Which leads directly into “why are they telling me this?” One of my favorite quotations, attributed to Alan Kay, is that “perspective is worth 80 IQ points.” I would suggest that the lack of perspective in reporting leaves us all much dumber as a result.

  • Raphael Holand says:

    Spectacular! I´m being a trader for about 10 years and your comment details in a very precise manner “the how” to make a prediction. There is a “question everything particularly the consensus” feeling in it which definitely is key to make a prediction.