Big, Bold Predictions: Tempting, but Rarely Correct

In the fall of 2011, Malcolm Gladwell predicted that "the revolution will not be tweeted." He took a lot of hits for this prediction, and, based on the events in Tunisia, Egypt, Libya, and now Syria, it seems like it may have been inaccurate. This questionable prediction doesn't cancel out Gladwell's earlier work or the amazing ideas he's shared with a wider audience.

But what this does highlight is that experts are not right 100 percent of the time. Yet we're still held rapt by their predictions. And the bolder their calls, the more we're interested.

It might help to understand why these forecasts and predictions are so tempting.

1. It's fun. We like having something to talk about at the neighborhood barbecue or around the proverbial water cooler. Now with Facebook and Twitter, the fun is multiplied a hundredfold. As social animals, we love being in the know and place value on being the one to break the news.

2. It's genetic. Our natural instinct to survive makes us sensitive to the world around us, and we're constantly trying to predict dangers lurking in the bushes. There is obvious value if you're the person in your tribe who can successfully warn others of danger or guide them to bounty. We rely on predicting and forecasting for almost every decision we make, including the weather, our commute time, and even what to wear based on what we predict others will think or say.

3. We want control. We all want to control our environment and our futures if we can. It's very difficult to accept that much of what goes on is random and that the only constant seems to be change. In fact, I recently heard a speaker at a conference say that we're becoming increasingly certain that the future will be uncertain. Because of the value we place on being in control, we tend to gravitate toward people we think can tell us what will happen in the future. After all, that gives us a sense of control.

4. We forget quickly. Many of the currently famous market forecasters have been wrong for years, but we quickly forget their incorrect forecasts from days gone by and cling to the one big call they recently got right. If you carefully analyze your history with market forecasters, you quickly realize that it's a revolving door. The forecaster who appears to be a prophet today will fade into the distance and a new one will appear.

Our willingness to listen to predictions, despite research that dismantles the notion that they're worth much, is an example of why it's so difficult to behave correctly when it comes to our relationship with investments. It doesn't seem to matter that these predictions are worthless. We still look for them, and genetically, we still want them. However, the best part of being human is that we can overcome genetics and recognize predictions for what they really are: a 50/50 guess.

A version of this post appeared previously at The New York Times.

Carl Richards is a financial planner and the director of investor education for the BAM ALLIANCE, a community of more than 130 independent wealth management firms throughout the United States. Visit Behavior Gap for more of Carl's sketches and writings.

The Motley Fool has a disclosure policy.

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