How can you improve your forecasting? One of Superforecasting‘s most useful principles is “outside first.” Suppose you have a lot of details about the Renzetti family, and you’re trying to guess whether it owns a pet. It’s tempting to dwell on the details, but:
The first thing [superforecasters] would do is find out what percentage of American households own a pet.
Statisticians call that the base rate – how common something is within a broader class. Daniel Kahneman has a much more evocative visual term for it. He calls it the “outside view” – in contrast to the “inside view” which is the specifics of a particular case. A few minutes with Google tells me about 62% of American households own pets. That’s the outside view here… Then I will turn to the inside view – all those details about the Renzettis – and use them to adjust that initial 62% up or down.
It’s natural to be drawn to the inside view. It’s usually concrete and filled with engaging detail we can use to craft a story about what’s going on. The outside view is typically abstract, bare, and doesn’t lend itself readily to storytelling.
As far as I recall, I’ve yet to lose a bet I publicly blogged. What’s my secret? I doggedly take the outside view. When long-run trends say X, and the “latest news” says Y, I go with X. When Democrats won big in 2008, I saw good luck, not a new political regime. That’s why, in 2009, I bet my former co-blogger Arnold Kling that the Republicans would regain control of one branch of the federal government by 2017. I won in 2010. During the Great Recession, I saw a bad business cycle, not a “new normal.” That why, in 2013, I bet Tyler Cowen that unemployment will fall below 5% by 2033. I am very close to winning already. When anyone forecasts any specific major disaster, I scoff. Disasters do happen, but almost all specific predictions of major disasters do not come to pass. And that’s why I am eager to bet against such predictions.
I sometimes joke that “news melts your brain.” What I really mean is that news amplifies our misguided impulse to take the inside view of things. To be a superforecaster, of course, you have to use the news to tweak the outside view. But most people would be better forecasters if they ditched the news and relied on base rates alone.