The futile act of prediction

Mankind has  been the most intelligent creation of nature but it does mean that we start assuming the supernatural powers of God and start predicting things. We have been able to develop fairly advance  forcasting models through our achievements in science and technology but they are still limited by our limited rationality i.e whether we have really been able to decipher the laws of nature or it might be that our theories are only able to explain some observable phenomena without coming up with the ultimate truth. We find most of them correct as they fit with our limited rationality and in some cases we force ourselves to such hitherto sacrosanct principles.

                                     In late 2007,Goldman Sachs had made a prediction that crude oil is going to touch $200 per barrel and now its currently trading at $50  per barrel. The intention is not to doubt their econometrics model but its high time they realise that systemic problems with their model and stop behaving like God about predicting future events. In early 2008, one reputed organization had made a prediction that rupee is going to appreciate to the level of 35Rs /$ by the end of 2008. Now,its currently trading at 50 Rs /$.  IMF is itself not sure how many times its going to release growth forcasts for different parts of the world with its figures appearing to be some random numbers generated from its model.

                                  We must relise that this is not a linear world where future outcomes can be predicted by the summation of different incremental inputs. We live in a world where there are possiblly infinite number of factors with the magnitude of  effect of each factor depending upon the outcomes of some other input. It does not mean that we should not  have some estimate of likely events which may happen in future but the business of predicting future is highly dangerous . It distorts market by encouraging speculation and in some cases may lead to undue euphoria or pessimism.