[extropy-chat] Inside Vs. Outside Forecasts

Robin Hanson rhanson at gmu.edu
Tue Oct 11 17:17:03 UTC 2005

"The Great Rationality Debate" by Philip E. Tetlock, Barbara A. Mellers,
Psychological Science, January 2002 - Vol. 13 Issue 1 Page 1-99

is a review of this book:

Choices, Values, and Frames, editors Daniel Kahneman, Amos Tversky
Cambridge University Press (September 25, 2000)

Here is an interesting section of their review:


Kahneman and Tversky draw a sharp distinction between two modes of
forecasting. Inside forecasts are generated by focusing on the case at
hand, by considering the intentions of the key players and the
obstacles to achieving their goals, and by extrapolating trends and
constructing scenarios. The inside view is unrepentantly idiographic,
anchored in a detailed understanding of the particular. The outside
view is adamantly nomothetic: It ignores the details of the case at
hand, and focuses on classificatory variables with demonstrable
predictive power.

Kahneman and Lovallo mince no words: "It should be obvious that when
both methods are applied with equal intelligence and skill, the
outside view is much more likely to yield a realistic estimate" (p.
406). Nonetheless, people overwhelmingly prefer the inside perspective
and, once in that mind-set, often become ensnared in scenario thinking
that makes it all too easy to mobilize support for far-out
predictions. The more ideational momentum that people can generate for
anticipating outcomes with low base-rate probabilities, the greater
the risk of overconfidence. Camerer and Lovallo show just how
treacherous inside views can be in their analysis of the excess entry
of entrepreneurs into competitive markets. Entrepreneurs are often far
more optimistic about their prospects for success than actual base
rates suggest they should be.

This is the Kahneman and Lovallo chapter mentioned above:

Timid Choices and Bold Forecasts: A Cognitive Perspective on Risk Taking
Daniel Kahneman and Dan Lovallo, pp. 393-413


The application to our forecasts about the future should be obvious:
Do we overestimate technical change because we tend to take an inside
view, imagining the particular process that produces some innovation,
instead of an outside view, looking at how long similar innovations have
taken in the past?

I couldn't find a copy online.

Robin Hanson  rhanson at gmu.edu  http://hanson.gmu.edu
Associate Professor of Economics, George Mason University
MSN 1D3, Carow Hall, Fairfax VA 22030-4444
703-993-2326  FAX: 703-993-2323 

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