The challenge of speed

Good point about how forecasters often miss very fast changes:

Tectonic shifts in the course of human events are almost never predicted ahead of time, even by the very people who stomp on the cracks…

Massive, fast-paced change, whether liberational, destructive, or just plain weird, is always and everywhere underpriced.

Gillespie and Welch offer some instructive, recent examples:

When asked in August 1989, only a few months after the electrifying demonstrations in Tiananmen Square, whether the communist East Bloc would ever be democratic and free in his lifetime, Czech economist Vàclav Klaus said no. Less than five months later, he was the first finance minister of a free Czechoslovakia. Morgan Stanley trader Howie Hubler lost $9 billion on a single stock market bet in 2007, not because he didn’t think the bubble of mortgage-backed derivative securities would pop, but because he couldn’t conceive of the price reduction exceeding 8 percent. For all but the last 10 days of 2007, the famed Iowa Electronic Markets (IEM) trading system for predicting major-party presidential nominees established as its clear Republican favorite the famous ex-mayor of New York, Rudy Giuliani. Yet, when it came time for people to actually vote in the primaries and caucuses, Giuliani lost in more than 40 states to Ron Paul, an obscure obstetrician/congressman whose name never even showed up on IEM’s 2008 election trading board despite his ending up with the fourth-highest number of delegates. 

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