Monday, 14 May 2012

Eurozone Break up? Which experts should we listen to?

It is possible the world will undergo profound changes in the next few years. The recent elections in Greece, won by parties campaigning on an anti-bailout platform have been hailed as marking the beginning of a new era of international relations, finance and politics. However, other commentators argue, equally plausibly that such a break up is neigh on impossible.

So which of these experts should we be listening to?

Well luckily for us a professor called Phillip Tetlock has given some insight into who is more likely to be correct. In his book Expert political judgement Tetlock attempts to create impartial standards for judging predictions. In a twenty year study Tetlock looked at two hundred and eighty four people who made their living commenting on political and economic trends.

In his analysis Tetlock categorises thinkers into two categories (borrowed from Isaiah Berlin); hedgehogs and foxes. Hedgehogs view the world through one distinctive meta-idea (think Karl Marx and class warfare) and view all developments, and predict the future through this distorting prism. Foxes try to understand the world through a variety of different angles, ideas and viewpoints.

While Tetlock found both experts to be relatively useless the foxes' ability to deal with uncertainty enabled them to make more accurate predictions than the hedgehogs that were often blinded by their slavery to their all encompassing idea.

What is perhaps more surprising is that hedgehogs are more likely to be higher profile, better paid and more successful than their fox peers. Hedgehogs are also more certain they are correct and more deluded in their assesment of the effectiveness of their own past predictions.

So, which if any, commentators should we listen to about the euro?

Well, first I guess it is easier to work out who we shouldn't listen to. Take Tim Worstall's column in the Telegraph which states that the way to work out whether the eurozone should exist is through the sole prism of "Robert Mundell's concept of an Optimum Currency Area. Equally, uninsightful are Andrew Alexander in the Daily Mail and Peter Morici of Fox News who both prepare arguments supported by an undying adherence to free-market theories that the Euro was doomed to failure from the start.  Or on the opposing side Barry Eichengreen from The National who can only see the issue through its contrasting path to his lifetime speciality, the gold standard.  These commentators are classic hedgehogs, blinded to the incredible complexity of life by adherence to single ideas or narratives.

Contrastingly, On the fox side of the discipline is an article in Der Spiegel which explores the issues through a combination of political, social and economic schemas. Another is written by Mohamed El-Erian in the FT which argues insightfully that keeping the Euro is possible in some conceivable instances. These are perfect examples of fox thinking, using a broad variety of narratives to look at an incredibly complex problem.

The conclusion then is simple, look for commentators who can deal with uncertainty and complex issues who deal with questions from a wide variety of angles. However, be prepared that the certainty we all crave will not be found in the arms of these sages.

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