Experience leads to overconfidence more than forecasting ability
2 min read
Experiencing specific events does not necessarily qualify you to know what will happen next
The most important events in historical data are the big outliers - tail events
Examples include: The Great Depression, World War 2, Dot-com bubble, 9/11, etc.
These outliers play an enormous role because they influence many unrelated events
Among the 15 billion people born in the 19th and 20th centuries, these six people probably had a major influence in shaping the world as we see it today:
Adolf Hitler, Mao Zedong, Joseph Stalin, Thomas Edison, Bill Gates, Martin Luther King, etc
Further you go back in time, the more likely you are that you are examining a world that no longer applies to today.
Since economies evolve, recent history is often the best guide to the future, because its more likely to include important conditions that are relevant to the future.
These tail events are a surprise
Each such outlier events is once-in-a-millenium kind of an event.
They surprise us. We can never be prepared enough for them