I once took a long drive from Illinois to Florida with my parents in a time before expressways. I carved out a corner of the backseat and piled up my stack of unread comic books. By the time we hit Georgia, I'd read them all several times despite frequent warnings they would rot my brain. Then a miracle occurred. When we pulled over for gas, a kid wandered over and stared through the rear window at my worn-out collection of Superman, Batman and Spiderman. Then he asked in a deep Georgia drawl, "Wanna trade?" By the time we pulled away from the station, I had completely replenished my reading supply and so had my Southern friend.
Now, who would have predicted that some 50 years later, either one of those piles of comic books might have been worth thousands of dollars to collectors, that Hollywood would pay millions for the rights to DC and Marvel comic book heroes, and that I would arrive at my 60th birthday with my brain relatively intact?
That early comic hero fixation led to harder stuff. In 1959, when science fiction was still a literary backwater, Isaac Asimov published the first of what would be called the Foundation trilogy. At the heart of the story was a new science called "psycho history," which enabled one to predict the future state of large populations spread across time and space and, by so doing, control them.
Into this well-oiled machine Asimov drops a mutant not considered in the predictions of psycho history or subject to them. It is a tale of the folly of placing too much faith in prediction. It also describes a battle between two civilizations, one called the Empire, the other the Foundation. It presaged the arrival of Darth Vader and Skywalker. Who would have predicted it?
Life in Extremistan
Nassim Nicholas Taleb has a name for events that are not only a surprise, but have extreme impacts and are explained only in hindsight: black swans. Examples include the fall of the Berlin Wall, 9/11 and the 2008 recession, along with a host of other unforeseen and consequential events. Black swans live within a world characterized by very big wins and by very big losses and where prediction is illusory — a place Taleb calls Extremistan.
To describe Taleb as skeptical is a significant understatement. He is also profoundly and entertainingly cynical. In a review in The New York Times, Janet Maslin calls him "calculatedly abrasive." He punches all order of expert predictions and pounds economists, academics and historians with particular relish. He criticizes the Nobel Prize-winning economist Edmund Phelps "for writings no one reads, theories no one uses, and lectures no one understands." He also has suggested that Nobel laureate Myron Scholes, to whom Taleb ascribes blame for the financial crisis of 2008, should "be in a retirement home doing Sudoku."
Taleb has suggested that investors should sue the Swedish Central Bank for awarding the Nobel Prize to economists whose predictions helped undercut the global economy, and he dispenses with historians by applying lessons from 1,001 days in the life of a turkey. "Consider a turkey that is fed every day. Every single feeding will firm up the bird's belief that it is a general rule of life to be fed every day by friendly members of the human race looking out for its best interests. … On the afternoon of the Wednesday before Thanksgiving, something unexpected will happen to the turkey. It will incur a revision of belief" — learning late that "the same hand that feeds you can be the one that wrings your neck."
Taleb takes the position that "almost all consequential events in history come from the unexpected. … " According to Taleb, we not only are slaves to experts, but also captives to the bell curve — where distributions pile up predictably at the center when, in fact, the events likely to have the biggest impacts on us reflect wild swings associated with fractal geometry and chaos.
Tiny Variations Shape the Future
Of course, Taleb is not alone in his consideration of prediction. Doyne Farmer, a theoretical physicist at the Santa Fe Institute, has dedicated much effort to making predictions related to, among other things, the stock market. His conclusion? You can predict short, but you can't predict long. "Sensitivity to initial conditions" undercuts the ability to predict long.
A cue ball is often used to illustrate the point. A straight shot and even a few banking shots may be accomplished with a degree of accuracy and predictability as to the results. But the path of the cue ball is so sensitive to infinitesimally small variations — the tip of the stick, the shape of the ball, the condition of the table, the temperature of the room, the force of the impact — that predictability evaporates as the number of deflections increases. Farmer also emphasizes the difficulties associated with predicting "systemic risk," which occur when individual components of a system interact and amplify one another to generate problems much larger than previously would have been imagined.
It's dangerous to predict long because things are certain to become inherently more complex as they move out over the time horizon. Tiny variations, including tiny errors, can compound into big variations and dangerous errors when they are extended far into the future. But predicting short is still enough to give you a significant advantage. Farmer's lessons are these, as summarized by Kevin Kelly in Out of Control:
- Underlying patterns inherent in chaotic systems can lead to good short-term predictions.
- You don't need to look very far ahead to make a useful prediction.
- Even a little bit of information about the future can be valuable.
The Timing Problem
Bruce Parker, Ph.D., a physical oceanographer and former chief scientist of the National Ocean Service in the National Oceanic and Atmospheric Administration, described prediction as "the 'very essence of science' in that we judge the correctness of a scientific theory based on its ability to predict specific events. … The inability to predict may be the result of some deficiency in our knowledge, or it may be the result of a great complexity inherent in the phenomenon. … We are left then only with probabilities."
Predicting that something will occur is easier than predicting when something will occur. In some instances, we're pretty good at "will," but "when" and "where" are different matters. For example, we can expect "the big one will strike California." But when and where are beyond our reach, and likely will stay that way. The tsunami that struck northern Japan in 2011 was predictable, and the Japanese were as prepared as anyone on Earth for such an event. What was not predicted was the location and timing of the earthquake that gave rise to the tsunami or the 30-minute window the Japanese had to react. Such prediction is impossible because of the complexity inherent in the numerous tectonic plates butting against each other beneath Japan.
In 2006, the National Hurricane Center forecast a hyperactive hurricane season, but hurricanes occurred only at the average rate. This reinforces the difficulty of trying to predict something even more complex than the interaction of tectonic plates — i.e., weather systems. Yet, these were tangible, physical things arguably measurable and subject to the laws of physics.
Predicting events that involve people is even further beyond the realm of the possible. As Augustine of Hippo said, "Grande profundum est ipse homo" — a human being is a vast oceanic depth — and is, as James J. O'Donnell, provost of Georgetown University, reflected, "just as fearfully and mightily unpredictable."
The Danger of Simplifying
Taleb identifies another problem that, in my experience, can have devastating consequences for organizations largely because it anesthetizes leaders: "[W]e humans, facing limits of knowledge, and things we do not observe, the unseen and the unknown, resolve the tension by squeezing life and the world into crisp commoditized ideas." The opiate of too simple a simplicity can cause people to quit thinking; after all, they have the answer. Consultants have built an industry around simple simplifications and for that reason can be very dangerous. They become even more so when they start predicting, often at the request of executives who are comfortable delegating their thinking to others.
Consultants and other experts are aided and abetted by computers. The British government has predicted that climate change will reduce global GDP by precisely 13.8 percent within 200 years, and The Washington Post has predicted that the cosmos will end in 30 billion years. Perhaps the inaccuracy of predictions on such long time scales can be forgiven, given the complexity; but what's hard to ignore is the willingness to make them with such apparent precision. 13.8? 30 billion? Why not 31?
Where does such precision come from? I have my suspicions. I think it comes from a computer spreadsheet. It's magical, the ability to quantify something. Ascribe a number to something, no matter how ill-defined, complex or abstract, and it seems to become more tangible, controllable and predictable. But if it were abstract before, it's likely to be abstract still; quantification is a delusion.
Predicting in an Uncertain World
This all has some significant implications for the role of executives in organizations, including health care organizations. What is it that is expected of an executive after all, particularly a CEO? Perhaps more than anything, it is judgment. Superior judgment should yield superior organizational performance. And so, what is judgment if not the ability to see the future of decisions made in the present — in other words, the ability to predict. Judgment is also held to reflect experience, but what if the relevance of experience ends on the day the farmer arrives to wring your neck?
Here are a few suggestions regarding how to deal with the challenges of prediction in an inherently uncertain world.
Don't be a turkey. The past won't protect you from the future. Straight-line projections with a few "what ifs" thrown into a spreadsheet will produce numbers. They won't produce certainty.
Predict short. Look ahead. Assess your options and those of others. Make a judgment. Define a pathway. Just don't outrun your headlights. Nobody knows what's around the next curve, including you.
Aspire long. Vision and differentiation across a three-to-five-year horizon are not predictions. They are aspirations. And they are necessary prerequisites for guiding an organization into the future because they provide the basis for focusing and aligning resources. The key is not to over-specify either the destination or the pathway to that destination.
Stay out of Extremistan. The best way to avoid black swans is to stay in Mediocristan. This favors making lots of small bets rather than a few big ones. There is a tendency to associate the behavior of executives willing to make big bets as heroic. Author Malcolm Gladwell takes a different view: "We associate the willingness to risk great failure — and the ability to climb back from catastrophe — with courage. But in this we are wrong. That is the lesson of Nassim Taleb."
Think! Former IBM CEO Tom Watson Sr., famously kept a nameplate on his desk with one piece of advice on it: Think! That means test your assumptions, consider your options and make your judgment. The key word here is "your." Don't hand off strategy to guys with simple things in nice boxes. Things are complex and, as an executive, it's your job to make sense of them.
Be prepared. Develop an organization that can shift gears quickly, has its eyes on the horizon, challenges its assumptions and isn't deluding itself by defining reality with a spreadsheet.
In the 1980s, experts, including some at the American Medical Association, predicted a surplus of physicians by 2000. Today, of course, experts are predicting a shortage. With uncertainty regarding reimbursement, the impacts of demographics, the influence of technology and the trajectory of the economy, this is a good time to look for the shadows of swans flying overhead. But remember, all swans, whether they are white or black, cast the same gray shadow.
Dan Beckham is the president of The Beckham Company, a strategic consulting firm based in Bluffton, S.C. He is also a regular contributor to H&HN Daily.