We are full swing into the political season and all the polls and predictions that go along with the time. It always amuses me to see how poorly all of the “scientific” polls perform at actually predicting winners and losers. In the recently concluded Iowa Caucus, for example, all nine major polls were wrong on the eventual GOP winner.
The reason the polls exist in the first place is that we all want to know what the future will be…even if on its face, the future is impossible to predict. We cling every day to the weather forecast for the weekend ahead and more often than not …it is wrong. We invest with fund managers and firms that say they can predict the future and again, for the main…the predictions don’t prove true. We may be inclined to see a temporary market pullback as a signal for what may happen in the future, but actual historical data, actual evidence, usually provides a wholly different perspective.
The human tendency to look for patterns among random information is called “Apophenia” by academics. This tendency often serves as fuel for a whole host of behavioral biases that then result in poor financial choices. Achieving a particular long-term financial goal, like financial security in retirement, often comes down to making a few better decisions (and avoiding the really poor decisions).
Why do we seek certainty when life is best lived as it comes, at its own speed? Like most behavioral biases, this tendency is wired into us. Sometimes, the patterns help us make sense of the world. The best way forward is to look at actual evidence, what has happened over long swaths of time. Most of the information that swirls around us each day is random and not part of some larger, longer pattern.
Planning with Possibilities or Planning for Probabilities …the choice is yours. Ready for a Real Conversation?