Have you ever noticed how good people are at explaining why something happened AFTER the event.
Turn on a finance TV channel and you'll hear detailed explanations of why the FTSE has done this, or why company X is up etc... It all sounds so plausible and commonsense. The reality however is that these people are completely clueless. Typically 75% of fund managers under perform the market. They don't know what's going to happen next week, never mind next year. But they are good at making up a story after the event that retro-fits the facts.
This isn't just in finance, it's everywhere. Sociologists talk about social trends as if they actually knew what is going to happen. They don't. They study the past, find the relevant facts and construct a story. They distil some "rules". They expect the rules to be followed in the future. They won't be.
The softer the science the more of this we have going on. The reason is that in these fields we don't know what we don't know. And it's harder to know that when a system is messy. Any day something new can come along and blow everything apart -- And when it does, the story tellers quickly incorporate the novelty into their framework, now we know everything, they will say. Until the next time!
Donald Rumsfeld was ridiculed when he came out with the following a few years back. I think he was onto something.
As we know,
There are known knowns.
There are things we know we know.
We also know
There are known unknowns.
That is to say
We know there are some things
We do not know.
But there are also unknown unknowns,
The ones we don't know
We don't know.
