Uncharted

02We hate feeling unstable, so much so that we'll do anything to get rid of it. But that can lead to bad decisions

We humans are creatures of habit. We like our routines, our predictability, and our stability. When things get shaky, we get uncomfortable and will do just about anything to get back to our comfort zone. This is the crux of the idea that Margaret Heffernan explores in her book. To make her point, Heffernan takes us on a journey through the history of economic forecasting. This is a field that was born out of our collective need to know what's coming next, to have some control over the future. She introduces us to three big names in this field: Irving Fisher, Roger Babson, and Warren Persons. Each of these guys had their own unique way of predicting what the economy would do next. First up, we have Irving Fisher. He was one of the first economists to really dig into national economies. He thought that the amount of money floating around was the key to understanding economic trends. Too much money, and you get an inflationary boom. Not enough, and you're looking at a recession. Fisher was convinced that if we could just measure and control the money supply, we could keep the economy stable. Next, we meet Roger Babson. He took a page out of Newton’s book and applied the laws of cause and effect to economics. He came up with these complex charts that showed periods of economic growth and recession. Babson was of the opinion that every economic downturn was balanced by a period of prosperity, and the worse the downturn, the quicker the recovery. Then there's Warren Persons. He was a numbers guy, a statistician. He didn't put much stock in theories. Instead, he looked at historical data to make his predictions. He thought that history had a way of repeating itself, and by studying past economic trends, we could get a handle on future ones. All three of these guys were driven by the same goal: to get rid of economic instability by predicting the future. They made a good living selling their insights and predictions, giving their clients a sense of control and certainty. But here's the kicker: they all missed the mark. None of them saw the stock market crash of October 24, 1992, coming. This event rocked the US economy and took everyone by surprise. Fisher, who had confidently stated that the markets had reached a "permanently high plateau", was especially embarrassed. This just goes to show that our need for stability and certainty can lead us to put too much faith in predictions and forecasts, even though they're often unreliable. The world is a complex and unpredictable place, and no matter how hard we try, we can't always make sense of it or predict what's going to happen next. So, what's the takeaway here? While it's natural to want certainty, we need to accept that the future is unpredictable. Instead of relying on forecasts and predictions, we should get comfortable with uncertainty and learn to roll with the punches.

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