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Why humans can’t predict the future, the stock market included

I haven’t yet read the book “Future Babble” by Canadian journalist Dan Gardner, but the review by Jesse Singal in the Boston Globe is intriguing, and it looks like it might shoot to the top of my reading list.

Gardner’s thesis is that humans make lousy prediction machines, at least when matched up with the complexity of the cosmos, although our collective vanity repeatedly leads us to seek out, or to become, sooth-sayers.

Stock market followers have heard this for years, mostly from the random-walk academic crowd. And pretty much it hasn’t stopped them (or me) from trying to peek around the corner of time and have a look-see.

Or, as Singal puts it:”Evolution has given us brains that desperately seek control over our surroundings. Therefore, they abhor a foggy future and yearn for a predictable one. This need for a sense of control is so profound that it can be the difference between life and death — in one “unsettling’’ experiment cited by Gardner, nursing-home residents were twice as likely to die over a given period if they were not given any decisions to make — that is, control over — regarding basic aspects of their environment such as furniture and plant placement.”

The remedy, according to Gardner, is the human emotion most difficult to scarf up when you need it: humility. He says if we can accept that the future is unknown and precise prediction impossible, we can work to make plans that are adaptable to a wide range of potential outcomes (nobody knows for sure how severe climate change will be, but weaning ourselves off of oil is a good idea regardless of what the future holds).

“This may not be as thrilling as believing we possess a map to the future and setting out boldly for some distant El Dorado,’’ writes Gardner, “but it is considerably less likely to end in a collision between one’s nose and reality.’’

Sure sounds like a though provoking read for any speculator. I just might try to pick up a copy, after, of course, putting on a couple of trades where I “know” I have the edge!

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