Nadia Daniella
BUAD 304 – 14734
Discussion Assignment #1
September 19, 2012

1. Despite the difficulty in making predictions, many people make assertions about what will happen in the future. I think that this is because of the many biases and errors that are involved in decision-making. Overconfidence bias means that most people are far too optimistic in analyzing situations or making decisions. Although no one has the ability to accurately predict the future, people think they know more than they actually do, making them more confident than they should be when they try to do so. I also think that people make assertions because we tend to selectively gather information that confirms our past and use that to create an assumption for the future. However, the information that we gather by this process tends to be biased to our own perception. I believe that people are also very confident in making future predictions because we think that we have some control over our world, destiny, and therefore the course of the future. We try to make sense of random events and see things in patterns and seek out meanings when in reality, too many variables are random and not in our control. We also have the tendency to believe that things are obvious after the fact. This hindsight bias creates the illusion that we know more about the past and lets us think that we are better predictors than we are.

2. When Vice President Joe Biden falsely predicted that more people would be getting jobs this summer, it might have been due to the perceptual error of selective perception. He might have selected data and information according to his own interests as a Vice President, seeing only what he wished to see without seeing the accurate picture. As a Vice President, he had the interest for employment growth and his prediction reflected this. The prediction that the Chinese economy is going down when instead it grew by 9.5 percent might be because of randomness error and the predictor was trying to create meaning in random events without taking into account regression to the mean. For example, if there were signs that the economy was slipping down, he might have overanalyzed it and thought that there was a continuous pattern when in fact the numbers actually went up. This might also be a result of the anchoring bias because he fixated on initial information and failed to adequately adjust for subsequent information. Many of the faulty predictions appear to be cases of overconfidence bias, these people may regard themselves as experts and thus rely too heavily on experience and put too much emphasis on their ability to guess where the future is going. When Jim Cramer says that Bob Steel’s the one guy he trusts to turn the bank around, he might be a victim of the halo effect. He drew a general impression about Bob Steel on the basis of their relationship, which might have nothing to do with Steel’s ability to “turn the bank around”.

3. There are so many predictions I have made that have not turned out the way I expected. During the Euro Cup, I have predicted that the German would win the soccer tournament because Spain had already won the World Cup, to me it did not seem likely that they would win 2 prestigious awards. I had falsely predicted today’s weather without consulting the weather forecast. I had predicted that Korean girl bands would soon infiltrate the US as it had in many international Asian countries, but instead of Korean K-Pop girl bands, a parody-like, a cheesy middle-aged man released a single that received millions of views on Youtube and signed by an American record label. I have also predicted something bad to happen on September 11, 2012, although as I had wished, nothing did.

4. I think that it is so hard to make accurate predictions because there are so many random factors and variables that account to everything that happens to the world that there is no possible systematic method to make precise forecasts. Although the past is an important reference to guess what will happen in the future, there is no guarantee. It is also more difficult because of the errors and biases that cloud our perception and judgment, such as availability bias, anchoring bias, and other heuristics. Other factors such as bounded rationality that refers to our limited information-processing capability and intuition decreases the rationality by which decisions are best made. As humans, we tend to rely on past experiences and might be unconsciously engaged in emotions. Making decisions are hard enough in general, let alone decisions/predictions about the future.