How to see through uncertainty
Why is it so difficult to have a clear strategic vision? Nate Silver says information overload is a major obstacle to accurate prediction today. The challenge for you as a business leader is finding “the signal in the noise” by honing your critical thinking skills and leveraging the company’s collective intelligence.
1. More information means more noise
Exponential increases in the quantity of available information are making it harder to hear “the signal in the noise.” Prediction failures are often due to the following three errors:
• Failure to consider conflicting information: “The instinctual shortcut that we take when we have ‘too much information’ is to engage with it selectively, picking out the parts we like and ignoring the remainder.”
• Confusing uncertainty with risk: Risks are measurable; uncertainties are risks that are hard to measure. Prediction tends to go awry when we confuse uncertainty with risk.
• Gap between what we know and what we think we know: “We make approximations and assumptions about the world that are much cruder than we realize.”
2. Finding the signal in the noise
Denying the important role of subjective human judgment in prediction increases the risk of failure. The following three behaviors can help you “find the signal in the noise”:
• Recognize the subjectivity of your predictions: According to Nate Silver, statisticians’ denial of the inevitability of subjective human judgment has only made prediction more prone to spectacular failure.
• Keep a critical mind: Making better predictions in the age of Big Data depends on the one human trait that computers can never replace: critical thinking. The use of quantitative data obtained via data analysis software doesn’t guarantee objectivity. How you interpret the data is far more important than the data itself.
• Leverage collective intelligence: Those who are most gifted at prediction weigh a wide array of disparate, even contradictory information. To gain a wider array of employee knowledge and insights, prediction markets encourage employees not only to share ideas about the future but also to bet on them as well.
Using collective intelligence to accelerate the future
According to Jim Lavoie, CEO of Rite-Solutions, every employee should be involved in shaping the future of the company and every opinion deserves to be heard. With this goal in mind, Rite-Solutions launched Mutual Fun in 2005, a form of prediction market that enables employees to invest in the future of their company.
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How to see through uncertainty
Based on The Signal and the Noise: why so many predictions fail – but some don’t, by Nate Silver (The Penguin Press, September 2012), “Oracles: How Prediction Markets Turn Employees Into Visionaries” by Donald N. Thompson (Harvard Business Review Press, 2012) and the interview with Jim Lavoie, CEO, Rite-Solutions, April 2013.
Business Digest nº 236, May 2013
Nate Silver discusses how trialand-error and large data sets are critical to improving prediction accuracy and why the mystique around computers can pose a danger to forecasters.