Our latest post on Forbes proposes a simple framework for leaders to apply when confronted with a strategic surprise-That 3am call… In short, don’t rush into action, no matter how urgent things seem to be! Read the post here.
Previous Forbes pieces:
Our latest post on Forbes is a reflection on the limits of forecasting after the publication of the National intelligence Council’s Global Trends 2030 report is available here. In short, don’t predict, construct.
Previous Forbes pieces:
We may be looking for you.
If you’re reading this blog, you’re probably the sort of person that the US Intelligence Advanced Research Projects Activity (IARPA) is looking for: IARPA is now looking for new participants for its online research study, Forecasting World Events.
The Forecasting World Events study involves making predictions about current issues that you select from various categories, like international relations, global politics, economics, business, and other areas. If you’d like to try to participate, click HERE.
Once you sign up at the website, they will send you a background questionnaire. After you complete the questionnaire, they will send you an e-mail to let you know if you have been selected. The initial questionnaire only takes about 20 minutes, and the prediction study itself is really interesting and quite quick to do every few weeks.
PS To understand the methodological background of the study, we recommend Tetlock’s Expert Political Judgment: How Good Is It? How Can We Know.
PPS If you enjoyed this post, why not subscribe to our blog? Thanks.
I’m not supposed to be blogging. Philippe and I have a book deadline at SUP this week. We have a Forbes piece due soon, too. And I have a speech to prepare for an Institutional Investor Forum in mid-September. So I’m going to make this quick…
Tonight I went out for dinner with a stack of reading to catch up on. Over indifferent Italian, I read two articles that I have to share. One I want to share because it’s so smart, and the other I want to share because it’s the opposite, but it parrots several popular misconceptions.
Posted in Theory
Tagged Anne Korin, China, commodities, dystopia, economics, energy, extrapolation, forecasting, Gal Luft, Geopolitics, GMO Quarterly Letter, Grantham, jeremy grantham, malthusianism, Minxin Pei, oil, Peter H. Diamandis, prediction, price mechanism, Simon and Ehrlich, SocGen, Steven Kotler, whale oil
As I explain to my students at IE, the most any business school can hope to do is move you from unconscious ignorance to conscious ignorance of a subject. In other words, a course can lay a firm foundation in a subject, and then provide a jumping off point for future self-study. After my MIAF course “Geopolitics and Investing”, that usually prompts the question, “Where should I begin such self-study?”
As I said in an earlier post, there are certain key books that point you towards how to think like an intelligence analyst. Because the skills of an intelligence analyst and a geopolitical investor overlap so much, I would also say that investors interested in geopolitics start with those key books. In particular, if you haven’t mastered the critical thinking and the basic analytic techniques described in Thinking in Time, Essence of Decision and The Thinker’s Toolkit, you are still in kindergarten as far as intelligence analysis is concerned. Heuer’s Psychology of Intelligence Analysis (downloadable free from the CIA’s site here) is also immensely valuable. None of these books will teach you geopolitical analysis per se, but they will give you a solid foundation in non-quantitative analysis.
One investor gets a grip on Geopolitics
Posted in Methodology & Tools, Theory
Tagged analysis, asset allocation, CIA, demography, economics, energy, event trading, forecasting, Geopolitics, Geostrategy, Graham T. Allison, Hedge funds, Intelligence Analysis, investing, Luttwak, Richard Neustadt, strategic autism, Use of history
In an earlier post about forecasting, I mentioned the work by Nassim Taleb on the concept of black swan. In his remarkable book, “The Black Swan”, Taleb describes at length the characteristics of environments that can be subject to black swans (unforeseeable, high-impact events).
When we make a forecast, we usually explicitly or implicitly base it on an assumption of continuity in a statistical series. For example, a company building its sales forecast for next year considers past sales, estimates a trend based on these sales, makes some adjustments based on current circumstances and then generates a sales forecast. The hypothesis (or rather assumption, as it is rarely explicit) in this process is that each additional year is not fundamentally different from the previous years. In other words, the distribution of possible values for next year’s sales is Gaussian (or “normal”): the probability that sales are the same is very high; the probability of an extreme variation (doubling or dropping to zero) is very low. In fact, the higher the envisaged variation, the lower the probability that such variation will occur. As a result, it is reasonable to discard extreme values in the forecasts: no marketing director is working on an assumption of sales dropping to zero.
Today I was reminded of the perils of forecasting while reviewing a Department of Defense document, the Joint Operating Environment 2010.
“JOE 2010″ as it’s called, is designed to provide the various branches of the US Armed Forces a joint perspective on likely global trends, possible shocks and their future operating environment. If you’re interested in geopolitics and strategy, I recommend that you take a look.
Apart from its inherent interest, JOE 2010 opens with a defense planning timeline that business and financial strategy practitioners – and anyone who consumes their work - would do well to bear in mind. I have reproduced it verbatim here:
1900 If you are a strategic analyst for the world’s leading power, you are British, looking warily at Britain’s Age-old enemy, France.
1910 You are now allied with France, and the enemy is now Germany.
Posted in Case study, Theory
Tagged black swan, China, Defense Planning, DOD, forecasting, France, Geopolitics, Germany, grand strategy, Internet, JOE 2010, Korea, NATO, non-predictive strategy, prediction, strategic autism, strategic surprise, strategy, UK, USSR, Vietnam
Near the end of a seminal essay on strategic surprise, Richard Betts writes, “The intelligence officer may perform most usefully by not offering the answers sought by authorities, but by offering questions, acting as a Socratic agnostic, nagging decision makers into awareness of the full range of uncertainty, and making authorities’ calculations harder rather than easier.” I believe that the same should be true for corporate strategy consultants: often their job is to make long-range calculations harder rather than easier.
Why then, is the opposite so often true? In a world in which surprise, disruption and the unanticipated are rife, why do strategists who promise to make calculations easier rather than harder often succeed? I think a phenomenon that I call of “Gresham’s Law of Strategic Advice” is at work.
E pluribus unum
Posted in Theory
Tagged BCG Matrix, Betts, Cicero, complexity, forecasting, Gazit, Gresham, Integrated Strategy, non-predictive strategy, Porter's Five Forces, prediction, strategic surprise, strategy, uncertainty, Value Chain Analysis
Many people are either beginning their holidays or are already in the midst of them. If you’re the type of person who reads a blog like this, you probably already know what you’re hoping to read on your break.
Therefore, I thought I’d try a different approach and offer a summer watching list rather than summer reading list. This list recommends three videos that you might consider for your travels or during your “down time”. All address different aspects forecasting, uncertainty, strategic surprises and decision-making. When you feel like a break from reading, give them a try.
Posted in Methodology & Tools, Theory
Tagged forecasting, foxes and hedgehogs, Gavin, Geopolitics, intelligence, judgement, non-predictive strategy, Saffo, strategic surprise, strategy, Tetlock, Use of history
There is no doubt we are terribly bad at forecasting. Even the smartest among us are. Even the best and the brightest, whom we have tasked to save the world from financial annihilation, are. Take Ben Bernanke, Chairman of the Federal Reserve. In 2004, he declared, in a speech ominously titled “The Great Moderation”: “One of the most striking features of the economic landscape over the past twenty years or so has been a substantial decline in macroeconomic volatility. This […] makes me optimistic for the future.” You might want to read the full transcript of the “Great Moderation” talk here because it is for a fascinating reading on how wrong experts can be at forecasting. And it’s not just Ben. In fact, political, economic and business histories are littered by forecasts and predictions that turned out to be ridiculously wrong. From the commercial potential of the Xerox machine or of Nespresso, from the possibility of heavier than air flight to the market for mobile phones, from prosperity at the corner of the street to Japan as number One. Our hopelessness at forecasting is a confirmed fact.