The Cost of Overconfidence

The Cost of Overconfidence

With SPACs all the rage, it’s important not to be too carried away by the rhetoric. Overconfidence can be expensive. This is true in geopolitics, public health, or the stock market. From the 1961 Bay of Pigs debacle to the slow response to the COVID-19 crisis, to millions of dollars lost speculating in the markets, history is filled with costly examples. And yet, bold statements continue to be overvalued in our culture. Time and time again, the media turn to pundits who speak with conviction despite their spotty track records when it comes to offering real foresight.

Think back to a year ago, when the airwaves were filled with experts and politicians confidently asserting that COVID-19 would swiftly pass. The US president claimed in February 2020 that the coronavirus was under control in the US and would disappear “like a miracle.” It took another month for the administration to acknowledge that the unfolding pandemic was serious.

“A confident yes or no is satisfying in a way that maybe never is, a fact that helps to explain why the media so often turn to hedgehogs who are sure they know what is coming no matter how bad their forecasting records may be,” writes Good Judgment’s co-founder Philip E. Tetlock in his book with Dan Gardner, Superforecasting: The Art and Science of Prediction.

Dr. Tetlock refers to a distinction between “foxes” and “hedgehogs,” a metaphor borrowed from ancient Greek poetry and popularized by the philosopher Isaiah Berlin: “The fox knows many things but the hedgehog knows one big thing.”

Hedgehogs tend to be more confident—and more likely to get media attention—but, as research has found in multiple experiments, they also tend to be worse forecasters. Foxes, in contrast, tend to think in terms of “however” and “on the other hand,” switch mental gears, and talk about probabilities rather than certainties.

For instance, last year Good Judgment’s Superforecasters were estimating with a 67% probability that worldwide cases of COVID-19 would exceed 53 million within a year and a 99% probability that deaths in the US alone would be more than 200,000—a figure many found exorbitant at the time. Superforecasters proved right in both cases. Their judgment was, and continues to be, well-calibrated. In other words, they know what they know and know what they don’t know, and they make their forecasts accordingly.

To avoid overconfidence, Superforecasters consider worst-case scenarios. Instead of relying on hunches and past success, they actively seek out evidence that those hunches may be wrong. They embrace new information and are not afraid to change their mind in light of new evidence.

Alas, pundits and most of the media have yet to join the foxes. “We live in a world that rewards those who speak with conviction—even when that is misplaced—and gives very little airtime to those who acknowledge doubt,” writes Financial Times columnist Jemima Kelly.

The sense of security that comes with confident judgments is comforting. But it is an illusion.

The cost of that illusion can be steep: from the inadequate early response to the pandemic to the investors trading to their detriment because they are overconfident about their ability to predict stock market returns.

Superforecasters know a way to avoid that cost: In a world that overvalues hedgehogs, pay more attention to your inner fox.

* This article originally appeared in Luckbox Magazine and is shared with their permission.

Open-Minded Forecasting in a Deeply Polarized World

Open-Minded Forecasting in a Deeply Polarized World

Americans today are more polarized than ever, and their split along two ideological extremes complicates a forecaster’s job. Polarization stresses feelings over facts, confounding the separation of signal from noise that’s essential to forecasting accuracy. Also, the forecaster’s own biases and preferences can be harder to recognize—and set aside—when society at large is polarized and the outcomes are personally consequential.

When Good Judgment Inc, a forecasting company with an unrivalled track record of accuracy, asked its professional Superforecasters to predict the outcome of the 2020 US election cycle, these challenges were front and center. Many Superforecasters live in the United States and feel deeply about political issues in the country. Some of them worried this could cloud their forecasting judgment. But Superforecasters thrive in the face of challenges. Here is what they did, and what you can do to improve the accuracy of your own predictions in a polarized world.

US Election 2020: Getting It Right

On the question of the presidency, the Superforecasters ­predicted a Democratic win of the White House in March 2020 and never looked back. On control of Congress, they began predicting both the House and Senate would go to the Democrats as early as June. Furthermore, they accurately called:

    • the long-delayed concession,
    • the record voter turnout, and
    • the Democrats’ presidential fundraising edge as of 30 September.

But getting it right is only half of the picture. Good Judgment strives not only to be right but also to be right for the right reasons. When polarization abounds, this is all the more important. To calibrate their thinking, Superforecasters use three simple strategies that consistently result in more accurate predictions.

Consider Alternatives

While the Superforecasters as a group assigned high odds for a Democratic sweep, individual Superforecasters predicted a variety of outcomes. A diversity of views is essential for good forecasting, but on issues you hold dear, considering other views is easier said than done. Over the week before the election, Good Judgment asked the Superforecasters as a group to imagine they could time-travel to a future in which the Republicans retained both the White House and the Senate. Regardless of their individual forecasts, they were then asked to explain why a “Blue Wave” election failed to occur in such a future.

This is called a pre-mortem, or “what if,” exercise. Thinking through alternative scenarios ahead of the actual outcome accomplishes several goals. It forces the forecaster to consider other perspectives, to rethink the reasoning and evidence supporting their forecasts. It also tests the forecaster’s level of confidence (over-confidence being a far more common issue than under-confidence) and helps avoid hindsight bias when evaluating the forecasts later.

Because Superforecasters already weigh multiple alternatives in making forecasts, this pre-mortem produced little change in the overall forecasts. Even after several days of internal debate on the “what if” scenarios, their aggregate probabilities barely moved.

But the exercise was useful. It showed that the Superforecasters’ predictions were well calibrated. It also produced multiple scenarios with detailed commentary, some of which proved clear-eyed in light of the actual events following the election.

Kjirste Morrell, one of Good Judgment’s leading Superforecasters, was among the participants in the exercise. She says she didn’t make large changes to her forecasts but underscores the value of the discussion.

“In retrospect, I should have placed more credence on the possibility of violence after the election, which was mentioned during the pre-mortem exercise,” she says.

Keep It Civil

A wise crowd encompasses diverse views. Studies based on the Good Judgment Project (GJP) found that being an “actively open-minded thinker” is positively correlated with being an accurate forecaster. That’s no mystery. Exposure to views with which we disagree can inform our understanding of the world. But Superforecasters don’t simply agree with everything. They know how to “disagree without being disagreeable.”

All forecasters can master this trait, as witnessed on our public forecasting platform, GJ Open. Throughout the 2020 election cycle, moderators observed very few comments that fell outside the reasonable bounds of civil discourse. This relative civility on GJ Open may surprise those accustomed to the rough-and-tumble of the Twitterverse. But it comes as no shock to Good Judgment’s co-founder Barb Mellers, whose research suggests that forecasting tournaments can reduce political polarization.

As the election cycle intensified and the public debate grew more heated and personal elsewhere on social media, GJ Open continued to emphasize facts and reasoned argument. It showed that forecasters can learn to remain focused on what matters to the accuracy of their predictions and block out the noise of inflammatory rhetoric.

Keep Score

Keeping score is essential to good forecasting, says Good Judgment’s co-founder Philip E. Tetlock. Superforecasters are not the only professionals who recognize this. Weather forecasters, bridge players, and internal auditors all know that tracking prediction outcomes and getting timely feedback are strategies that improve­­ forecasting performance. Superforecasters use quantifiable probabilities to express their forecasts and Brier scores to measure accuracy. Keeping score enables forecasters and companies to learn from past mistakes and to calibrate their forecasts in the future.

No single forecast is truly right or wrong unless it is expressed in terms of absolute certainty (0% or 100%). If the probability of President Trump being re-elected were 13% (Good Judgment’s forecast as of 1 November), he would win the election 13 out of 100 times if we could re-run history repeatedly. That’s why forecasting accuracy is best judged over large numbers of questions.

The Superforecasters’ accuracy has been scrutinized over hundreds and hundreds of questions, and a forecasting method that can beat them consistently has yet to be found. The Superforecasters know what they know—and what they don’t know. They know how to think through alternative scenarios and how to “disagree without being disagreeable.” They also know the importance of keeping score. When it comes to calculating the odds for even highly polarized topics, their process shows how best practices deliver the best accuracy.

* This article originally appeared in Luckbox Magazine and is shared with their permission.

How to Combat Overconfidence—One Superforecaster’s Take

How to Combat Overconfidence—One Superforecaster’s Take

Military historian and Superforecaster® Jean-Pierre Beugoms is featured as an exemplar of outstanding thought processes in best-selling author and top Wharton professor Adam Grant’s latest book, Think Again. Below, he shares insights on overconfidence and how it can be avoided by judging the evidence properly.

Jean-Pierre Beugoms

A high-confidence forecast can be fully justified when the evidence supporting it is strong. When the evidence supporting such a forecast is weak, then we can say the forecaster is being overconfident. We can therefore avoid overconfidence by properly judging whether the evidence is strong or weak.

I have found that people often fall into the trap of making overconfident forecasts when they let their gut or intuition do the forecasting for them and when they dismiss or overlook critical information that contradicts their forecast rationales.

A textbook example of overconfidence might be Peter Funt’s March 29, 2021, column in USA Today entitled, “There’s zero chance Joe Biden will run in 2024.” A zero-probability forecast for a Biden reelection campaign may well be an accurate one, but the evidence he uses in support of his forecast is underwhelming.

First, Funt bases his forecast on out-of-date information. He points to Ryan Lizza’s campaign reporting which cites four people who say a reelection campaign is “inconceivable” to Biden, but he ignores the more recent reporting of The Hill, which notes that those close to Biden assume he will run again.

Second, Funt interprets Biden’s declaration that he sees his presidency as a bridge to the next generation of leaders in only one way. That is, as a promise to serve one term. Biden’s statement is ambiguous, however. There is no reason why his bridge cannot encompass two terms.

Third, Funt dismisses Biden’s response to a reporter’s question asking him whether he will run again. Although Biden answered in the affirmative, Funt argues that Biden has no choice but to say yes because, if he says otherwise, he will immediately become a lame-duck president. The argument certainly makes sense, but is it not possible that Biden also means it?

Fourth, Funt completely neglects the “outside view.” He fails to look at what other ambitious people in high office have done. Had he done so, he would have realized that Biden’s decision to pass on a chance at winning reelection would be a highly unusual move even given his advanced age.

In short, had Funt considered the reporting that contradicted his assumptions, he may well have tempered his forecast. On the other hand, an article entitled “There’s a forty-five percent chance Biden will run in 2024” will not receive as many clicks.

The best way to guard against overconfidence in forecasting is to embrace uncertainty. Most people just want to know whether a fact is true or not and whether an event is going to happen or not. Denied this certainty, they will throw up their hands and declare the future as completely unknowable. This kind of thinking will get you into trouble because reality is often not quite as clear-cut.

You will have to get used to thinking in terms of probabilities of truth instead of yes (100%), no (0%), or who knows (50%). When confronted by a person who thinks in black-and-white terms, do not be afraid to say things like, “yes, but it depends,” or “what you say is true, but I am not as categorical as you are,” or “you are wrong, but not completely wrong.”

As part of your forecast rationale, include a list of uncertainties or possible secondary events that would have an effect on your forecast. Whittle down or expand the list as needed. Try this out and you will be well on your way toward being a well-calibrated forecaster.

Look at your forecasts with fresh eyes from time to time. Play the devil’s advocate and challenge the assumptions that undergird your high-confidence forecast. This exercise will help you weigh more objectively those annoying little facts that call your forecast into question.

Here are some facts that may undermine the high-confidence consensus forecast that the Tokyo Olympics and/or Paralympics will go as planned. While it is true that Tokyo is no longer under a state of emergency, the chances of a renewed surge in cases are not negligible, especially since a good many Japanese would not have received their vaccines by the time the games begin. A clear majority of the Japanese public oppose going ahead with the games, owing to these public health concerns. How would the government of Japan react to a public outcry over another wave of cases? While it is true that the political and economic incentives to hold the games are great, are we to believe that this hypothetical event would have no effect on their decision-making?

I am not arguing that anyone should moderate their near-certain yes forecast (e.g., 95%) to a more tentative yes forecast (e.g., 65%). I am saying that going through this exercise of questioning your own forecast, even if it does not result in you changing your forecast at all, will at least give you greater assurance that your high-confidence forecast is a sound one.

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