Humans love predictions . We speculate for years about who will win the next presidential election. We fill out Final Four tournament brackets. We check the seven-day forecast — even though the morning newscast is often wrong about the weather for that night. And, of course, we constantly try to guess whether an investment is on its way up or way down.
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The problem with all this predicting: We're terrible at it. Studies routinely show that humans are generally worse at forecasting things like elections, basketball tournaments and stock-market moves than a chimp with a dartboard. But why are we so bad at it? (If we knew what we were doing wrong, after all, maybe we could stop or even improve). It's a question social scientists have been picking apart for a while now, and two new studies offer some potentially useful insights.
In a new working paper from INSEAD international business school, researchers Kriti Jain, J. Neal Bearden and Allan Filipowicz look at how depression affects the accuracy of one's forecasts. For their study, the researchers chose the 2010 World Cup, the men's soccer championship held in South Africa last summer.
For the experiment, the researchers wanted an event over which the study participants had no control — as opposed to, say, testing students' predictions on how they well they'll do on their midterm exams (pessimism, for example, can be a self-fulfilling prophecy). A soccer tournament more closely resembles a real-world prediction task, like investing in the stock market.
The researchers recruited 1,110 soccer fans to make forecasts of which teams would make it to various rounds of the tournament, and offered cash prizes for those who did well. They then screened the pool of participants for depression to compare the predictions of the depressed with those who were not depressed. What they found was that the depressed forecasters made significantly worse predictions than the non-depressed forecasters. In particular, the depressed forecasters over-weighted the odds of unlikely events -- like North Korea winning the whole tournament. Interpreted literally, their guesses implied that 2.5 teams would win the World Cup.
This pattern of guessing could be interpreted as "optimism" or "hope," but the teams the participants were evaluating were picked at random, so it's unlikely the subjects had much emotional attachment to them. Instead, the researchers speculate that the depressed subjects were simply less sensitive to reality — in mathematical terms, the "base-rate probabilities" of how teams could be expected to perform. Studies have estimated the depressed proportion of the workforce is around 5-10%; that's a lot of people who may systematically be making slightly wilder guesses about the probabilities of various events.
Of course, depression is only one thing that can bias a person's predictions. In another sports-based study, forthcoming in the journal Psychological Science, researchers at Yale and San Diego State University looked at how optimism can cloud our judgment.
Looking at the predictions of football fans each week for the entirety of the 2008 season, the researchers found that despite financial incentives to make accurate predictions — and the feedback of watching teams win or lose, week after week — optimism heavily biased participants' predictions throughout the season. People were far more likely to predict wins for their favorite team, and other teams that they liked, than they were to predict wins for teams that they didn't like. This bias persisted week-to-week despite real-world feedback on which teams were doing well and which weren't.
Does this mean we're incapable of controlling our biases when it comes to making predictions? Being mindful of our biases can help, but the extreme motivation to want to think that the stock market will always go up or that your favorite team is blessed by God is a tough one to overcome. Our brains want to think we know what will happen next — even when we don't, we need the stability of thinking we do.
At the end of the day, if you see a sunny day forecast for Saturday on a Monday -- and even if you've been burned before — you're probably going to believe it. Depressing, isn't it?
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