Different types of predictions

As part of the run-up to my overview of my own predictions for 2012, I thought i should highlight why I bother at all.
Most predictions, most of the time, will be wrong. Crystal balls aside, it is nearly impossible to reliably, accurately predict future complex events. However, the process of rigorously considering what might happen, what could go wrong, what the drivers of change are – all of those are really useful.
But why then bother making ultimate predictions if the “process” is where the value is? As it turns out, making the final prediction is part of the process. Paying poker without money at stake is a pointless exercise; there are no consequences to poor play (be it luck or skill that was lacking).
Making that firm and final prediction is important to ensure the process was rigorous and not an off the cuff guess.
Finally, evaluating part performance can’t suggest whether the predictions are improving, whether they are consistently biased or whether the system is working.
So, most predictions are wrong, but some are useful.

Published by David Kirk

The opinions expressed on this site are those of the author and other commenters and are not necessarily those of his employer or any other organisation. David Kirk runs Milliman’s actuarial consulting practice in Africa. He is an actuary and is the creator of New Business Margin on Revenue. He specialises in risk and capital management, regulatory change and insurance strategy . He also has extensive experience in embedded value reporting, insurance-related IFRS and share option valuation.