I am not one of those clever people who claims to have seen the 2008 financial crisis coming, but by this time 10 years ago I could see that the fallout was going to be bad. Banking crises are always damaging, and this was a big one. The depth of the recession and the long-lasting hit to productivity came as no surprise to me. I knew it would happen.
Or did I? This is the story I tell myself, but if I am honest I do not really know. I did not keep a diary, and so must rely on my memory — which, it turns out, is not a reliable servant.
In 1972, the psychologists Baruch Fischhoff and Ruth Beyth conducted a survey in which they asked for predictions about Richard Nixon’s imminent presidential visit to China and Russia. How likely was it that Nixon and Mao Zedong would meet? What were the chances that the US would grant diplomatic recognition to China? Professors Fischhoff and Beyth wanted to know how people would later remember their forecasts. Since their subjects had taken the unusual step of writing down a specific probability for each of 15 outcomes, one might have hoped for accuracy. But no — the subjects flattered themselves hopelessly. The Fischhoff-Beyth paper was titled, “I knew it would happen”.