The Forecasting Fallacy

The Illusion of Short-Term Gains and the Underestimation of Long-Term Consequences

For any decision maker, it helps to understand the major trends shaping the future. For a political leader who wants to position his or her country or community for a prosperous future, understanding societal and technological changes is critical to attracting business, improving quality of life, and creating wealth. 

Similarly, investors who possess a keen understanding of their industry’s trajectory can capitalize on emerging opportunities. By identifying promising sectors and trends, they can make strategic investments that yield substantial returns. Moreover, entrepreneurs who stay at the forefront of technological advancements gain a competitive edge. By leveraging the latest innovations, they can develop sustainable and successful businesses.

In essence, the ability to make informed decisions depends on understanding what the future holds. However, this is harder than it sounds. As detailed in “The Myth of Linear Progress,” most of us instinctively think about the future in terms of linear progress. We look at today’s reality and simply project it forward at a steady, incremental rate of change. However, this intuitive, linear way of thinking causes us to grossly underestimate the potential and impact of exponentially growing technologies such as artificial intelligence, renewable energy, biotechnology, and others.

Because studying and understanding each technology and societal trend is a tedious and time-consuming task, many decision makers rely on experts, industry reports, and forecasts to gain a better understanding of the future. The problem is that even though these experts are familiar with and have witnessed the accelerating pace of technological progress, they also instinctively project the current rate of progress into the future. By ignoring the “historical exponential view,” they fail to accurately predict technological progress.

This bias has profound implications for decision making. For example, it can lead to underinvestment in emerging technologies, missed opportunities for innovation, and inadequate preparation for the societal and economic changes brought about by technological disruptions.

Predictions Missing the Mark

Some better-known historic examples of predictions missing the mark include for example Thomas Watson, president of IBM, who said in 1943 that there “is a world market for maybe five computers”. Or Darryl Zanuck, Head of 20th Century Fox, who predicted in 1946 that “television won’t be able to hold on to any market it captures […, because] people will soon get tired of staring at a plywood box every night.” Or Ken Olson, Founder of Digital Equipment Corporation, who declared in 1977 that “there is no reason anyone would want a computer in their home.”

In the 1980s, McKinsey & Company and AT&T projected a global market for cell phones of roughly 900,000 phones. Today, there are billions of cell phones in use worldwide. Apropos phones, in 2007 Steve Ballmer, then CEO of Microsoft, ridiculed the iPhone, saying “there’s no chance that the iPhone is going to get any significant market share.”

In 2000, Blockbuster passed on the opportunity to purchase Netflix for $50 million, believing in the superiority of their brick-and-mortar model. Today, Netflix has more than 200 million subscribers worldwide, while Blockbuster eventually crumbled.

In the more recent past, we can find multiple examples where leading consulting companies and investment banks turned out to be overestimating the short-term impact yet greatly underestimating the longer-term impact of technological progress.

For example, around 2015, multiple investment banks broadly forecasted that fully autonomous vehicles would be widespread by 2020, only to correct their stance shortly thereafter. As Facebook rebranded into Meta, a hype around the Metaverse emerged. Forecasters predicted a rapid mass adaption and a revolution of work and social interactions. Yet, so far, neither Meta nor the recent launch of the Apple Vision Pro penetrated the mass market yet.

When it comes to the impact of artificial intelligence, McKinsey Global Institute’s predicted in 2017, that 50% of the work done by knowledge workers would be automated. By 2023, only six years later, McKinsey adjusted this forecast to 70%.

A review of historical predictions by business leaders, industry reports, and forecasts by respected consulting firms and investment banks reveals a recurring pattern: while short-term effects are often overestimated, long-term effects are often underestimated due to the fallacy of intuitive linear thinking.

Approaches for Predicting Long-Term Trends

What can leaders and decision-makers do to anticipate long-term trends with greater accuracy?

While overcoming the intuitive linear bias is critical, there are five helpful approaches we can use to predict major long-term trends in our human society and evolution:

  1. Environmental Futurism
  2. Kondratiev Wave Analysis
  3. Generational Cycle
  4. Geopolitical Futurism
  5. The Study of Technological Revolutions

1. Environmental Futurism 

Environmental futurism studies long-term ecological and resource trends to anticipate major civilizational shifts. As climate change accelerates, futurists warn of cascading disruptions to food, water, and energy systems that could destabilize the global economy.

However, these existential threats are also driving a sustainability revolution, unlocking trillions of dollars in investments into renewable energy, regenerative agriculture, and green transportation.

When forecasting technological progress, such as the emergence of artificial general intelligence (AGI), environmental futurism highlights two key considerations:

  1. The risk of climate shocks derailing the exponential growth of technology due to societal instability and resource constraints.
  2. The potential for AGI to catalyze a sustainability revolution by rapidly advancing technologies that transform destructive industries and practices.

2. Kondratiev Wave Analysis

Nikolai Kondratiev, a Russian economist, theorized that the global economy moves in 40-60 year “super cycles” driven by the emergence of new general-purpose technologies; as hinted in “The Myth of Linear Progress”, artificial intelligence is likely this particular new general-purpose technology of our time.

According to his analysis, we are currently in the “winter” phase of the 5th wave, characterized by stagnation and institutional failure.

However, Kondratiev Wave Analysis predicts that within the 2020s we will be entering the 6th wave, powered by advancements in AI, robotics, and biotechnology. This new wave is expected to unleash an era of economic dynamism and growth.

Through the lens of Kondratiev waves, the path in front of us is likely to be turbulent, as it coincides with the transition between long waves.

Investors and leaders who anticipate this trend can position themselves for this transition and reap extraordinary returns.

3. Generational Cycle Theory

Generational futurists like Neil Howe and William Strauss argue that history moves in 80–100-year cycles, known as “saeculums.” Each generation’s characteristics are shaped by their place within this cycle. According to their model, we are currently in a “Fourth Turning” crisis period, similar to the Great Depression or World War II, where institutions will undergo intense disruption and transformation.

For predicting technological timelines, generational theory suggests that the 2020s and 2030s will be a period of rapid technological and social change. The crisis-forged institutions of the previous saeculum will give way to a new order, driven by the emergence of new transformative technologies like AGI.

4. Geopolitical Futurism

Geopolitical futurists study the shifting balance of power between nations to identify long-term winners and losers. Many argue that we are entering a multipolar world as the unipolar moment of US hegemony wanes. In this context, the race for technological progress and AGI is not just a technological competition, but a defining struggle between great powers to secure primacy for the rest of the century.

Ergo, leaders must consider not only which companies or research labs are furthest ahead, but also which nations are best positioned to capture the economic, military, and cultural high ground as exponential technologies reshape the global chessboard.

5. Technological Revolutions

The study of technological revolutions examines how clusters of new technologies disrupt and transform societies in recurring 50–60-year cycles. According to theorists like Carlota Perez, we are currently in the “deployment phase” of the Information Revolution, as the core technologies of computing and the internet reach maturity. 

The next revolution will be driven by “deep tech” breakthroughs in AI, quantum computing, bioengineering, and new materials.

Leaders who understand the inner logic of technological revolutions can surf these waves of creative destruction to build the platforms and enterprises of the future.

A Holistic Perspective

No single lens can provide perfect clarity in forecasting, but by cultivating an exponential mindset and synthesizing insights from diverse frameworks, decision-makers can develop a more comprehensive and nuanced understanding of the future.

While industry reports and expert predictions offer valuable insights, they often fall victim to the intuitive linear bias, overestimating short-term impacts while underestimating the transformative potential of exponential technologies.

To navigate this uncertain landscape, leaders must triangulate insights from multiple predictive models, seeking convergence points that suggest significant technological leaps on the horizon.

While the precise timing of these breakthroughs remains uncertain, the convergence of models pointing to a technological leap in the 2040s provides a compelling long-term vision. Leaders should embrace this bold, exponential perspective, recognizing that the future may unfold far more rapidly and dramatically than many experts anticipate.

Amidst the chaos and complexity of exponential change, one thing remains clear: the stakes could not be higher. The leaders who successfully identify and ride these macro-waves of technological disruption, societal transformation, and economic opportunity will not only secure the success of their organizations but also play a pivotal role in shaping a future of shared prosperity and progress for all. In an age of exponential possibility, fortune favors the prepared mind and the bold vision.

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