Saturday, June 6, 2015

Getting it wrong time after time… but people keep believing

Image result for rat smells cheese

You could be forgiven for wondering at the success rate of failure… even in recent times – Nostradamus, Malthus, and most recently Ehrlich. Spectacularly wrong in their predictions. Ditto for various events – the end of the world has been predicted numerous times and lesser catastrophes – even ones sounding scientifically plausible have suffered the same fate (Y2K, annihilation by SARS etc.)…. and yet we seem to want more, journalists believe these are “stories” as representing balanced journalism worthy of reporting. The journalists at least have the defence that such stories may generate cash for some one.

Why the persistent failed predictions? Perhaps easy enough to understand but why the appetite for more and the persistent credibility lent to failed efforts. The current outstanding example concerns the vast army of doomsday oil forecasters and perhaps offers a clue.

Simple failure to understand how demand and supply operates. The red haze of “hate an oilman and become a saint, strike a blow against capitalism and redeem your soul” seems to descend and blind the otherwise perfectly intelligent.

Levitt and Dubner explain it as well as any at the moment and here I build from that. People respond to incentives (often unconsciously, even against their will but they do). If the price or cost to them (another version of price) of a good or service goes up, they will consume less of it. Notice their demand (the inner intrinsic desire to have the good or service) doesn't change….they still want it. Just less of it at the new price. So when the price of oil goes up people still want it – they just want less of it at a high price.

The real kicker though is that there is an incentive, a stimulus, a reward, a reason – an incentive to figure out how to get the price down. To innovate, to discover, to explore to find out how to do things in a smart enough way to get the price down. That is exactly what has happened with oil and numerous other things.

Perhaps the reason people find it so hard to accept that there will be adaptation (people drive that SUV a little less, make their kids walk a little more, buy an electric not an oil heater, use heat pumps not oil burning central heating) and innovation (horizontal drilling, quicker oil test validation technologies, lower cost environmental controls, higher quality environmental costs at same or lower costs) is that, by definition, you can’t see it beforehand.

When Malthus predicted universe ending starvation he could not foresee the agricultural let alone the industrial revolution. Could I do better? Of course not. Could anyone? Of course not. Could any politician? Even less likely.

What we can see though is the thousands of years of evidence that people will respond to incentives and innovate to get what they want in as great a quantity as they can. A better life just happens to be one of those things. The rat smells the cheese every time – and that particular piece of cheese is insufferably aromatic.

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