Michael Gilliland is a longtime business forecasting practitioner and currently Product Marketing Manager for SAS Forecasting. In his blog he mentions a new favorite article on forecasting, “Living in a world of low levels of predictability,” by Spyros Makridakis and Nassim Taleb.
Many know Makridakis as co-author of the standard forecasting text Forecasting: Methods and Applications, and Taleb for his Fooled by Randomness and The Black Swan. Taleb, in particular, has drawn attention to the issue of the un-forecastability of complex systems, and the sometimes disastrous consequences of our “illusion of control, pretending that accurate forecasting was possible”.
While referring to the (mostly unforeseen) global financial collapse of 2008 as a “prime example of the serious limits of predictability”, this brief and non-technical article summarizes the empirical findings for why accurate forecasting is often not possible, and provides several practical approaches for dealing with this uncertainty.
So why is a vendor of forecasting software so excited by an article telling us the world is largely unforecastable? Because Makridakis and Taleb are correct – we should not have high expectations for forecast accuracy, and should not expend heroic efforts trying to achieve unrealistic levels of accuracy, says Michael.