Forecasting-Why you don’t get what you thought you would

5 Aug

Wilson and Gilbert’s (see Wilson et al, 2003) work on affective forecasting is not only fascinating but also incredibly powerful when it comes to improving judgements and decisions. With data and options in greater supply, but also risks, taking measures to improve the quality of forecasts, the basis of decisions, seems like a sensible step to take. I’ll briefly attempt two things in this article- explain what affective forecasting is and how it could be applied.

Affective forecasting, in a nutshell, is the prediction of one’s emotional state in the future. For example- this car will make me very happy. If a person goes ahead and buys the car, they’ll be an initial euphoria followed by a relatively quick return to the person’s baseline emotional state. So- yes the car did produce some happiness but not for as long, or as much, as predicted (see Kahneman, 2011). This is affective forecasting, the overweighting of the effect of future events both for better or worse; another example- things rarely turn out, emotionally, as bad as predicted.

The bias of affective forecasting is extremely strong and influences decision making. It is also a difficult bias to shake off. Whether we like to admit it or not our emotional states drive our decisions. In business, decisions are made on predictions which are overweighed all the time. This can become aggravated by “data based decision making”. Once a prediction is made, the sheer volume of data available makes it very easy to cherry pick data to support a prediction whilst explaining any contradictions way. So, how can you improve judgements by taking account of this bias?

Gilbert (2013) suggests consulting someone who has lived your future. I’ll give you an example- a friend of a relative was fixated on investing into a property deal. The relative, with decades of project management experience behind them, argued it was a very bad idea, but the friend dismissed it; they had affectively forecasted the outcome favourably. I suggested they first watch a week of the TV programme Grand Designs, where all sorts of people take on major building projects (you could probably get 10 episodes in a week), and said make a note how many projects come in on time, on budget and what the investors, emotionally, go through. Twenty fours later, and two episodes of Grand Designs, my relative got a phone call explaining they were going to pull out the deal.

So, when making a decision based on how you think things will turn out in the future, don’t consult bland data, information sheets or similar. Instead get a comprehensive account of someone who has lived that future, it will improve decisions both for the individual and a business. This could be as simple as watching the right documentary and also a potentially better use of some of the massive data bases we now have access to.

References
Wilson, Timothy D.; Daniel T. Gilbert (2003). “Affective Forecasting”. Advances in Experimental Social Psychology 35: 345–411
Kahneman, D (2011) Thinking Fast and Slow. Penguin
Gilbert, D (2013) (p.45) AFFECTIVE FORECASTING…OR…THE BIG WOMBASSA: WHAT YOU THINK YOU’RE GOING TO GET, AND WHAT YOU DON’T GET, WHEN YOU GET WHAT YOU WANT in John Brockman (Editor) (2013) Thinking: The New Science of Decision-Making, Problem-Solving, and Prediction. Harper Collins

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: