Why is this interesting? - The Copernican Edition
On forecasting, Copernicus, and our slow-moving reality
|Noah Brier||Jul 12, 2019||8|
Noah here. I really like the Bloomberg email Five Things to Start Your Day. Each newsletter has five stories that are moving markets and ends with a quick paragraph on something one of the authors is thinking about. Tuesday’s edition included this take on forecasting from Joe Weisenthal:
Yesterday Tracy Alloway and I interviewed Philip E. Tetlock, an expert on forecasting and making predictions, for an upcoming episode of our podcast. It won't be out for several weeks, but there was one comment that jumped out at me as being particularly timely and relevant. Tetlock said people make a common error of overestimating the frequency of "inflection points" in whatever they're studying. So for example, geopolitical forecasters are likely to overstate the odds of an imminent regime change or coup in any given country, despite those events being extremely rare. Part of the problem is that simply saying "the status quo will probably persist for the time being" comes off as boring and doesn't win you any glory and doesn't get you much attention in the media. Anyway, I was thinking about this with respect to the market and the economy right now. The post-crisis era has been characterized by an exceptionally long, stable period of moderate growth and cool inflation. It's a cliche, but it's basically been a "goldilocks" environment for investors. Right now we're in a period where people are starting to wonder if this is coming to an end. … While there are all kinds of crosswinds and headline risk and everything else at the moment, perhaps people should be open to the idea that really not much has changed from what we've seen virtually non-stop since 2009.
Why is this interesting?
At first this seems like it should be the opposite of interesting. After all, the suggestion that the most likely future is one where things will be roughly the same as they are now hardly seems like a bold take. But in the world of the “news peg” (WITI 4/25), predicting lack of change feels like a revolutionary stance. That’s because we all want to believe this moment is different and that we’re special. But it probably isn’t and we’re almost definitely not.
In a 1993 paper, the physicist Richard Gott articulated how to extend the “Copernican Principle” to forecasting. The basis of the idea is simple: if you stop assuming this moment is special, just as Nicolaus Copernicus showed that Earth is just another normal planet within the solar system, then your assumptions about where we are in any cycle will change dramatically. That is, rather than believing we’re on the precipice of some important moment, you’ll instead conclude that we’re most likely somewhere in the middle of the cycle, with roughly as much time left as has already been ticked off.
“I first thought of it in 1969. I’d just graduated from Harvard and was travelling around Europe, and I visited the Berlin Wall. People at that time wondered how long the Wall might last. Was it a temporary aberration, or a permanent fixture of modern Europe? Standing at the Wall in 1969, I made the following argument, using the Copernican principle. I said, Well, there's nothing special about the timing of my visit. I’m just travelling—you know, Europe on five dollars a day—and I'm observing the Wall because it happens to be here. My visit is random in time. So if I divide the Wall’s total history, from the beginning to the end, into four quarters, and I’m located randomly somewhere in there, there’s a fifty-percent chance that I’m in the middle two quarters—that means, not in the first quarter and not in the fourth quarter.”
That last point is the most important. Nevermind the more detailed math, if you just break any cycle down into quarters, it’s more likely you’re in one of the two middle quarters than the first or last. While Gott ultimately has a more complicated equation, his prediction for the lifespan of the Berlin Wall was between two-thirds of a year and twenty-four years, with the wall ultimately falling twenty years later. If that seems like a wide range, remember he was making this prediction in 1969 at the height of Cold War uncertainty in what must have seemed like a “special moment”. Applying the ideas back to Joe’s take on Tetlock’s forecasts, it seems a lot less revolutionary to think that maybe it’s more likely we’re headed towards stability instead of catastrophe.
Or, as Rusell Davies wrote in his cheeky take on year-end predictions for Wired magazine in 2015: “... we'd be remiss if we didn't also point out that a key defining characteristic of 2016 will be that, for the most part, it'll be exactly the same as 2015. And very like 2014. And much the same as 2006. And, actually, not that different to 1996, 1986 and 1976. Get a bit further back and it'll get different, but it's important to consider this point: most things, certainly most big things, don't change very fast. It's just that we don't pay attention to them.” (NRB)
Plant of the Day:
This giant asparagus-looking thing is actually the month-old flowering of a massive agave at the Cambridge University Botanic Garden. “Staff have been tending the agave, part of a family of plants from which tequila is made, since 1962 but cannot confirm its species until it flowers. They will soon have to remove the roof of the glasshouse as it continues to grow, but once it flowers, it will die.” (NRB)
Taleb, of Black Swan fame, explaining “Skin in the Game” in a Medium post. (CJN)
Great Adam Wray deep dive on Peter Saville. He’s one of the best writers on fashion and design and I will be pestering him for a WITI piece soon. (CJN)
On the soft tailoring style of Naples. David Coggins is fun to read on a variety of topics. (CJN)
Thanks for reading,
Noah (NRB) & Colin (CJN)