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News and thoughts. Read at your own risk!

A Trumpian example of uncertainty vs risk (vs who-knows...)

20/2/2017

 
An article in the WSJ (quoted also on vox.com) reports that the Trump transition team pressured government staff to generate unrealistically rosy economic forecasts. "[W]hat’s unusual about the administration’s forecasts isn’t just their relative optimism but also the process by which they were derived. [...] they weren’t derived by any process at all. Instead of letting economists build a forecast, Trump’s budget was put together with transition officials telling the CEA staff the growth targets that their budget would produce and asking them to backfill other estimates off those figures.”
Setting aside questions of delimitations of responsibility and effective expert collaboration, this also goes to the heart of the difference between uncertainty and risk. Navigating uncertainty involves thoughtfully exploring the range of paths the future may follow, and defining and working towards reasonable objectives consistent with that. A "what would you have to believe" scenario can be part of that, but it's hazardous if you bully others to make it your most important or even only one. Managing risks involves exploring concrete reasons why you may fail to achieve your existing objectives. Constructing a forecast that lets you meet them and then working backwards to deduce exactly why your assumptions need to be "too rosy" to achieve that can be extremely helpful. Of course, merely forcing your expert collaborators to feed you back a narrative that falls in line with your marketing message is neither.

    Martin Pergler

    Principal, Balanced Risk Strategies, Ltd..

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