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RiskMinds Americas

Achieving better foresight and forecasting in the “Trump Era”

Posted by on 23 May 2018
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RiskMinds Americas comes to Boston 24-26 September, and will have a strong focus on the risks impacting banks and financial institutions state side. Guntram Werther, Professor at Fox School of Business, Temple University, will be discussing improving finance and risk management foresight abilities, and here explores how to best achieve this in the current political climate. 

What is Risk in the “Trump era” if not that the vast majority of pollsters, pundits, politicians, analysts, experts, managers and other ‘thought leaders’ failed to foresee the “Trump era” itself and thereafter often forecast wrongly about its outcomes? President Trump regularly reminds us of this when he advises on matters that experts initially misjudged. Repeat failures to foresee and respond to these unexpected instances have risk implications.

Simultaneously the “Trump era” is coinciding with long-emerging, global shaping events and perspectives that were foreseeable and forecast by a minority.

Nobody pays for ‘Who could have foreseen that?’ thinking in the long run.

I have previously argued that analysts of the future must add value beyond the output of machines, or they will not maintain professional status and pay (1). Similarly, if analysts cannot foresee and forecast effectively and accurately within a ‘Trump era', what are employers paying for? Nobody pays for ‘Who could have foreseen that?’ thinking in the long run. To foresee and add value involves building up better qualitative, integrative and holistic – non-mainstream – assessment approaches. So how can risk professionals do this?

Four “Trump Era” Global Themes

In Against the Tide, global free trade proponent Douglas Irwin says that humanity has been trying to achieve ‘free trade’ benefits for over 2,500 years (2). This then begs the question: if global free trade is such a brilliant idea, what is taking so long? The answer is recurring societal backlashes each time against its expected effects. Holistic assessment of this expects and forecasts backlash as part of globalization.

The “Trump era” appears to be one of many societal backlashes against this and other geopolitical shifts, and its maturation arose in plain sight over many years. We can look at four themes which could help build a picture around this maturation:

  1. Border walls: There are currently over fifty border walls, including between trade partners, built mostly to help manage non-state conflicts and unwanted human migration. Wall building expanded greatly in the 21st century, but did not begin then. The Trump era platform is the completion of an existing US-Mexico border wall, not building a new one.
  2. Anti-illegal (non-state authorized) human migration sentiment: Like above. The U.S. Border Patrol was formed during the early 1900’s globalization collapse. Societies throughout history react to unwanted human migration stressors with policy, police and barriers.
  3. Increasing anti-globalization sentiments: A historical look at prior globalization promotes this element as ‘to be expected’. The whole Bretton Woods post WW2 system of managed-by-experts globalization idea is a response to the WW1 era failure of that free trade globalization idea. In the 1970’s, for example, the U.S. Chamber of Commerce commissioned studies over their concern about coming labor unrest as this globalization matured.
  4. Increasing anti-global/mainstream left/right political parties: If Brexit surprised you then likely the other aspects of the “Trump era” do too. New insurgent parties in Europe mostly grew slowly, then expanded just as existing mainstream parties in the U.S. and Europe declined or shape-shifted internally about 2016. Recall, both the U.S. Democratic and Republican parties had major internal insurgencies of long gestation.

Each societal backlash pattern has long been visible. The key point is that technology-based assessments routinely failed. Machines couldn’t put information together as a meaningful, empirically supportable narrative. Analysts using more holistic, dynamically integrative approaches did better (1).

How to improve your foresight

Focusing on the idea, its expected consequents and their context-specific embedded, entangled and emergent syndrome features and change processes is fundamental. This endlessly iterative, layering up, folding in process creates holistic judgment in a non-random, thinking with bias, way. It is passive about ‘getting’ information.

Most large scale, large impact, rare event emergences are not Black Swans. They are not even hard to foresee.

The Society of Actuaries’ funded Recognizing When Black Swans Aren’t monograph provides details on holistically training analysts to better recognize, assess and respond to emerging normal change and extreme events (3). In fact, most large scale, large impact, rare event emergences are not Black Swans. They are not even hard to foresee. Usually, several people ‘got’ it right - and it wasn’t through luck. They used the same basic holistic thinking approaches (3).

It is professionally advantageous to become one of them.

What next? 

The ideas, narratives, goals and their consequents in the “Trump era” are neither mysterious nor unknowable. Like preceding Bretton Woods’ globalization era ideas, policies and outcomes, they have expected upsides and downsides that do not emerge from nowhere.

Enfolding good judgment as empirically supported narratives is better done holistically than mechanically. This can be built as professional best practice and into university training.

Newsletter1

 (1)  Werther, Guntram. Improving Finance and Risk Management Foresight Abilities: Growing

Past the ‘Black Swan’ Mindset through Integrative Assessment. Journal of Risk Management

in Financial Institutions. September 2017, Vol. 10. No. 4.

(2)  Irwin, Douglas. 1998. Against the Tide: An Intellectual History of Free Trade. Princeton: Princeton University Press.

(3)  Werther, Guntram with Thomas R. Herget. 2013. Recognizing When Black Swans Aren’t: Holistically Training Management to Better Recognize, Assess, and Respond to Emerging Extreme Events. Schaumberg: Society of Actuaries.

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