ThinkingThe future – how can we think about it effectively?

The future – how can we think about it effectively?

These days it seems like a lot of my clients are thinking about what the future will bring. “Disruption” of industries is a big theme: along with the effects of global warming; and the rise of machine intelligence. It’s got me thinking – how can we think about the future effectively. Or is it entirely a mug’s game?

Here is a tentative list of some principles for thinking about the future. Offered in the spirit of exploration – rather than any kind of claimed expertise.

1. Think in terms of “a cone of uncertainty”

Paul Saffo, a futurist, thinks of forecasting as “sketching a cone of uncertainty into the future”. Good forecasting is not so much about predicting what will happen, but rather about what may happen. In other words, good forecasting is about seeing how wide the cone of uncertainty actually is – not trying to say what “points” within that cone will actually come about.

To me, this feels a bit like sketching scenarios. But I suspect it’s also about playing with spectrums – moving a variable from one extreme to another, and seeing what kinds of possible futures get generated. For example, what happens to our business in a world where energy gets suddenly cheap – through to staying the same as today – through to, what happens if it gets very expensive?

2. “The future is already here — it’s just not very evenly distributed”

This is a great quote from William Gibson – and I’ve heard it in a number of places over the last few months. Gibson was apparently referring to the uneven access to technology depending on where you live and how rich you are. For example, at the moment “wearable tech” is still the domain of a few – and is likely to remain so with the Apple Watch for a while. But you can already see a time when wearable tech will be as ubiquitous as smart phones are today. What are the other things from the future that are already here, but not recognised as such because they’re not yet common?

3. The weather tomorrow will be the same as the weather today

If you predict that the weather tomorrow will be the same as the weather today, you will be right about 80% of the time. And it’s not just weather that this applies to. Over the short term, many systems are stable. Markets are a great example. I won a bet on the weekly closing price of the bill futures market against quite a few pro bill traders in the late 80s using this principle. While they were predicting next week’s economic figures and what the RBA and/or the market would do, I followed a simple heuristic: next week’s 90 day bill futures closing price will be the same as this week’s closing price. Over the course of ten weeks, my forecasts were the most accurate. As the “young grad” I won a nice dinner at the newly opened Rockpool restaurant. Sometimes you can over-think things – particularly experts!

4. But some systems are chaotic and therefore inherently unpredictable

However, the “weather heuristic” has a downside. Many systems are chaotic, and therefore, over time, inherently unpredictable. Weather is actually one such system. Chaos theory is a branch of mathematics. Essentially it says that some systems are very sensitive to the initial conditions you feed into them. Over time, slight differences in initial conditions result in very large variations. This is why it will never be possible to accurately predict the weather more than a week to ten days in advance. We will never be able to measure all the initial conditions for our models accurately enough. As a result, no matter how good the forecast model, the difference between the approximated initial conditions we feed in, and the actual conditions on the ground, will “blow out” as the model iterates. This is the classic “butterfly in China, hurricane in Florida” effect.

Note that this does not mean that climate models are going to get things wrong about global warming. Global climate is not a chaotic system in the same way local weather is.

5. Never discount the “black swan”

There are some things that can’t be predicted and even don’t show up in a well constructed “cone of uncertainty”. These are Taleb’s “black swans” and there are more of them than one might think. Just because something is unimaginable doesn’t mean that it can’t or won’t happen. To Taleb’s thinking, the best way to prepare for “black swans” is not to try to forecast them, but to arrange your affairs in an “anti-fragile” way. If a system is “anti-fragile” it gets stronger under volatility – rather than being broken by it (“fragile”) or being left untouched by it (“robust”). One way to achieve anti-fragility is to build “optionality” into your business – take a number of bets that are low cost (because they have a low likelihood of success), but high payoff if conditions suddenly change. In other words – forget even trying to predict the future, instead focus on preparing your business for uncertainty. In fact focus on designing your business to prosper under uncertainty.

Your ideas

I’d love to hear from you as to what your “rules of thumb” are for dealing with thinking about the future. Leave a comment below.

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