Sublime

In August alone, the fund lost roughly 45 percent of its capital, an event that the fund’s risk analysis predicted should happen no more than once in the history of Western civilization. It shouldn’t be unduly difficult to draw a conclusion about whether LTCM was extremely unlucky, or whether its managers misunderstood the nature of the risk.

But as knowledge grows, the role of the professional comes under questioning. Developments in technology give professionals the power to produce larger and broader effects at the same time that they become more clearly aware of the remote consequences of their prescriptions.

just as we perceive more signal than there really is when we make predictions, we also tend to attribute more skill than is warranted to successful predictions when we assess them later. Part of the solution is to apply more rigor in how we evaluate predictions. The question of how skillful a forecast is can often be addressed through empirical met

Foxes, Tetlock found, are considerably better at forecasting than hedgehogs.

“Who experts were—professional background, status, and so on—made scarcely an iota of difference,” Tetlock concludes. “Nor did what experts thought—whether they were liberals or conservatives, realists or institutionalists, optimists or pessimists.” But “[h]ow experts thought—their style of reasoning—did matter.” The critical variable turned out to

“The fox knows many little things, but the hedgehog knows one big thing.”

Phil Tetlock, a leading researcher in the study of accountability, defines accountability as the “explicit expectation that one will be called upon to justify one’s beliefs, feelings, or actions to others,” coupled with an expectation that people will reward or punish us based on how well we justify ourselves.