“The fox knows many things, but the hedgehog knows one big thing," the Greek poet Archilochus once said.
The following are excerpts from an article "By Eric Schurenberg, Money Magazine" on and interview with "Philip Tetlock, a professor of organizational behavior at the Haas Business School at the University of California-Berkeley.
The article was done in early 2009 just after the crash and of course and event like that evoked many articles which attempted to explain how such a monumental shift occurred but was forecast by only a few. I came upon this article only recently and I felt it's relevance went well beyond the single occurrence that triggered the author to report this information. We all attempt at times to forecast future direction. We all listen and take advice from others to form our personal forecast. We all often feel let down by the advice we obtain and this article attempts to explains why we often trust such false information and what we might do to filter media information to help us forecast better in the future.
Which forecasters should you trust on the direction of the economy and the markets? Ask Philip Tetlock, who knows the kind of experts worth listening to - and what to listen for?
The most important factor was not how much education or experience the experts had but how they thought. You know the famous line that [philosopher] Isaiah Berlin borrowed from a Greek poet, "The fox knows many things, but the hedgehog knows one big thing"? The better forecasters were like Berlin's foxes: self-critical, eclectic thinkers who were willing to update their beliefs when faced with contrary evidence, were doubtful of grand schemes and were rather modest about their predictive ability. The less successful forecasters were like hedgehogs: They tended to have one big, beautiful idea that they loved to stretch, sometimes to the breaking point. They tended to be articulate and very persuasive as to why their idea explained everything. The media often love hedgehogs.
How do you know whether a talking head is a fox or a hedgehog?
Count how often they press the brakes on trains of thought. Foxes often qualify their arguments with "however" and "perhaps," while hedgehogs build up momentum with "moreover" and "all the more so." Foxes are not as entertaining as hedgehogs. But enduring a little tedium is worth it if you want realistic odds on possible futures.
So if you were looking for a money manager, you'd want a fox?
If you want good, stable long-term performance, you're better off with the fox. If you're up for a real roller-coaster ride, which might make you fabulously wealthy or leave you broke, go hedgehog.
But it was doomster hedgehogs like money managers Robert Rodriguez and Jeremy Grantham who first saw the crisis coming.
Hedgehogs are sometimes way, way out front. But they can also be way, way off.
Most of the experts who called the downturn are still bearish. Would you expect them to be able to call the rebound too?
No. In our research, the hedgehogs who get out front don't tend to stay out front very long. They often overshoot. For example, among the few who correctly called the fall of the Soviet Union were what I call ethno-nationalist fundamentalists, who believed that multi-ethnic nations were likely to be torn apart. They were spectacularly right with Yugoslavia and the Soviet Union. But they also expected Nigeria, India and Canada to disintegrate. That's how it is with hedgehogs: You get spectacular hits but lots of false alarms.
Could we live without experts?
No way. We need to believe we live in a predictable, controllable world, so we turn to authoritative-sounding people who promise to satisfy that need. That's why part of the responsibility for experts' poor record falls on us. We seek out experts who promise impossible levels of accuracy, then we do a poor job keeping score.
So, what does this have to do with our business of everyday sales in real estate? Well, beyond having a better understanding of the forecasters (media types) of future activity, we might also stop to consider the types of buyers and sellers that we deal with, day in and day out, and try to be a little more empathetic in helping both hedgehogs and foxes meet their forecast objectives.