The problem with relying on experts

If there is one new year’s resolution we should all have, it is to stop relying on experts in our decision making.

Don’t get me wrong.  There’s a role for people with know-how in the physical world, from plumbers to physicists, and test pilots to grain inspectors.

The expert advice we should be wary of comes from people who trade in the subjective, making predictions about the future based on their knowledge of the past.

In his book, The Black Swan, Nassim Nicholas Taleb presents a compelling case as to why experts” in fields like military intelligence, political “science”, economics, real estate and securities are often no more accurate in predicting the future than the average person.

These “experts”, like all humans, have a tendency not to reverse opinions we already have, and to selectively look for evidence to support them.  We also tend to attribute accurate predictions to our own abilities, and misfires to external events. 

Which brings me to interest rates.  If you were a central banker that believed, through your own genius, inflation had been tamed forever, you might confidently predict interest rates would not rise. And you might blame unforeseen rises on events you had failed to predict.

Which gets us back to the key point. The future is unpredictable.  The only history that genuinely repeats, is the history of “experts” routinely getting their forecasts wrong.

This article also appeared in The West Australian newspaper.

All