And being the complex pieces of work that we are, we exhibit some interesting psychological behaviour.
One example of such interesting behaviour is what is known as hindsight bias. This is when we suddenly seem very informed about an event after it has already happened and it seems like the event was inevitable: "I knew it all along."
Hindsight gives us false confidence because we incorrectly believe that we could have predicted the outcome. Hindsight bias has a side effect because we dismiss the idea that other equally likely outcomes could have happened, and we do not plan for those in the future.
Hindsight bias crops up everywhere. Stock market analysts show plenty of hindsight bias. After a market downturn, many analysts smugly tell us that the market was overdue for a correction. Well Mr. Hot Shot Analyst, why didn't you tell us before?
Another example would be the Kargil War. We were, to put it unkindly, caught with our pants around our ankles. But after the war happened--after the fact--many "experts" suddenly popped up all around us like curious prairie-dogs and told us, in tones of authority, that we were simply asking for it. No shit, sherlock.
It is my contention that we humans not only exhibit hindsight bias, we also exhibit what I am cleverly calling foresight inertia. This can be operationally defined as those times when we foresee a grave future consequence of a present action--using things like collected data, past performance and our educated judgement--and yet do very little about it because the solution is "too hard". Or because we believe that a less energetic solution will work equally well.
Take India's population figures. We are told by demographers that India's population, given the current trajectory of growth of about 1.4% every year, will reach 1.7 billion people by the year 2060. At which point, it will stablize because we will have achieved zero population growth.
[NB: Forgive me for redundancy, but to achieve Zero Population Growth, a country needs to reach Replacement Fertility Rate. This is when a couple has no more than two children and essentially just replaces themselves. The actual figure for Replacement Fertility is slightly higher than 2. It is 2.1 I think, to account for those who die prematurely without having children of their own. India's current fertility rate is about 3.01 children per woman. These numbers may seem quite small and the difference between them insignificant, but remember that these are rates that are applied to very large numbers of the order of a billion, and that too in geometric progression. Even a small difference in these rates can have serious non-convergent effects.]
That number, 1.7 billion, is itself a scary number because it essentially means that we will have about twice the number of people to support, mouths to feed, bodies to clothe. Given that we are currently not exactly doing a bang-up job of doing these tasks, it is only fair to ask if our current rate of GDP growth will cover these bases? I personally wouldn't bet on it.
What if we are wrong and India's population does not stabilize in 2060? And we don't have to be wrong by much; a tenth of a percentage point will do it.Will fertility education work or do we have to do a "China"?
These are valid questions. Those who ask these questions are sometimes seen as pessimistic alarmist doom-and-gloom types. I think that these labels are a little unfair. Because these questions are meant to shake us out of foresight inertia.
In the interests of fairness, let me say that foresight inertia is not always a good thing. Since it is very difficult to predict the future it is conceivable that we will often get it wrong. Attempting to fix a problem that will not occur in the future may very well make the future worse rather than better. It would be a troubled society indeed if everybody always jumped up and acted on every little "foresight" that they had.
But foresight inertia is negligent and immoral, maybe even criminal, in situations where the cost of sitting still is very high.
Let me explain. What if I say to you, "Look here so-and-so, we are heading for a demographic catastrophe in India. If population growth is not checked, it will dilute any economic gains. What do we do?"
You, being a sunnier sort, say, "Well, look at the bright side. Haven't you heard how everybody is talking of India's Demographic Dividend? Lighten up, my friend, and chill. Here, have a gin-and-tonic."
Now either you are right or I am right. If we choose to be alarmist (my way) and implement a contingency plan that I come up with, and turns out that you were right, we should still be ok. A little sheepish perhaps, but basically ok.
But if , perchance, I am right, and we take your approach of doing nothing or too little, we, my bright-eyed friend, are dead.
Yes, this is maybe Pascal's Wager rehashed, but if you are reading this, then you read all the way through, didn't you? Sucker!
Hindsight bias crops up everywhere. Stock market analysts show plenty of hindsight bias. After a market downturn, many analysts smugly tell us that the market was overdue for a correction. Well Mr. Hot Shot Analyst, why didn't you tell us before?
Another example would be the Kargil War. We were, to put it unkindly, caught with our pants around our ankles. But after the war happened--after the fact--many "experts" suddenly popped up all around us like curious prairie-dogs and told us, in tones of authority, that we were simply asking for it. No shit, sherlock.
It is my contention that we humans not only exhibit hindsight bias, we also exhibit what I am cleverly calling foresight inertia. This can be operationally defined as those times when we foresee a grave future consequence of a present action--using things like collected data, past performance and our educated judgement--and yet do very little about it because the solution is "too hard". Or because we believe that a less energetic solution will work equally well.
Take India's population figures. We are told by demographers that India's population, given the current trajectory of growth of about 1.4% every year, will reach 1.7 billion people by the year 2060. At which point, it will stablize because we will have achieved zero population growth.
[NB: Forgive me for redundancy, but to achieve Zero Population Growth, a country needs to reach Replacement Fertility Rate. This is when a couple has no more than two children and essentially just replaces themselves. The actual figure for Replacement Fertility is slightly higher than 2. It is 2.1 I think, to account for those who die prematurely without having children of their own. India's current fertility rate is about 3.01 children per woman. These numbers may seem quite small and the difference between them insignificant, but remember that these are rates that are applied to very large numbers of the order of a billion, and that too in geometric progression. Even a small difference in these rates can have serious non-convergent effects.]
That number, 1.7 billion, is itself a scary number because it essentially means that we will have about twice the number of people to support, mouths to feed, bodies to clothe. Given that we are currently not exactly doing a bang-up job of doing these tasks, it is only fair to ask if our current rate of GDP growth will cover these bases? I personally wouldn't bet on it.
What if we are wrong and India's population does not stabilize in 2060? And we don't have to be wrong by much; a tenth of a percentage point will do it.Will fertility education work or do we have to do a "China"?
These are valid questions. Those who ask these questions are sometimes seen as pessimistic alarmist doom-and-gloom types. I think that these labels are a little unfair. Because these questions are meant to shake us out of foresight inertia.
In the interests of fairness, let me say that foresight inertia is not always a good thing. Since it is very difficult to predict the future it is conceivable that we will often get it wrong. Attempting to fix a problem that will not occur in the future may very well make the future worse rather than better. It would be a troubled society indeed if everybody always jumped up and acted on every little "foresight" that they had.
But foresight inertia is negligent and immoral, maybe even criminal, in situations where the cost of sitting still is very high.
Let me explain. What if I say to you, "Look here so-and-so, we are heading for a demographic catastrophe in India. If population growth is not checked, it will dilute any economic gains. What do we do?"
You, being a sunnier sort, say, "Well, look at the bright side. Haven't you heard how everybody is talking of India's Demographic Dividend? Lighten up, my friend, and chill. Here, have a gin-and-tonic."
Now either you are right or I am right. If we choose to be alarmist (my way) and implement a contingency plan that I come up with, and turns out that you were right, we should still be ok. A little sheepish perhaps, but basically ok.
But if , perchance, I am right, and we take your approach of doing nothing or too little, we, my bright-eyed friend, are dead.
Yes, this is maybe Pascal's Wager rehashed, but if you are reading this, then you read all the way through, didn't you? Sucker!

