Tuesday, 12 February 2008

Knowledge and pseudo-knowledge

It’s often easy to distinguish prejudice from informed opinion. Prejudice is an opinion ‘without visible means of support’ whilst the holder of an informed opinion can back it with arguments and examples. The holder may be part of a professional community with its own journals, models, prizes, etc.

But is every subject with these features a form of knowledge? It turns out that quite a lot of them are not.

One relatively easy way to determine whether a subject is really knowledge is to ask whether the people practicing it can make valid predictions. By valid I mean that their predictions are correct significantly more than half the time and much more often than the predictions made by non-experts.

[Some subjects, eg theology, media studies, contain many theories that make no predictions. I have discussed three of these separately.]

Pseudo-subjects are rare, possibly unknown, in science and engineering because these subjects have institutionalised methods for testing their theories. They are much commoner in medicine largely because of the power of the placebo effect. For instance, Homeopathy makes predictions about the effects of its treatments. When carefully tested to exclude placebo effects, eg in double-blind clinical trials, these predictions are generally wrong.

They are commoner still in the subjects that study human activity, eg Politics, Economics and the humanities.

In The Black Swan – The Impact of the highly improbable (Allen Lane, 2007) Nassim Taleb looks at the evidence on the accuracy of predictions made in Security analysis, Political science and Economics. In each case he finds there are few studies but that those that exist show the predictive power of these fields to be poor.

Security analysis

Securities are tradeable financial instruments such as shares, options, collateralised loan obligations. The job of the securities analyst is to advise investors which to buy and which to sell.

T Tyszka and P Zielonka (Expert Judgements: Financial analysts versus weather forecasters. J. of Psychology and Financial Markets, 2002, vol 3(3), p 152-160) found that, compared to weather forecasters, security analysts are worse at predicting but have more faith in their predictions. An analysis communicated by Philippe Bouchard showed that predictions in this area are on average no better than assuming this period will be like the last period, ie worthless.

This is despite the analysts’ extensive knowledge of the firms and sectors they study!

Political science

Philip Tetlock (Expert Political Judgement: How good is it? How can we know?, Princeton University Press, 2005) asked about 300 supposed experts to judge the likelihood of certain events within the next five years. He collected c27,000 predictions. He found:

· Experts greatly overestimated their accuracy

· Professors were no better than graduates.

· People with strong reputations were worse predictors than others.


Taleb found no systematic study of the accuracy of economists’ predictions. Such evidence as exists suggests that they are just slightly better than random. For instance Makriades and Hibon (The M3-Competition Results, Int. J. Forecasting, 2000, vol 16, p 451-476) ran competitions comparing more and less sophisticated forecasting methods. They found that sophisticated methods, like econometrics, were no better than very simple ones.

Common threads

In each case:

· The experts know a lot more facts than the layman.

· They also know more theories about their fields.

· There is little published research about the accuracy of these theories.

· Supposed experts are not familiar with what little there is.

· Predictions cluster – experts copy each other.

· Predictions do not generally cluster around the true value.

These fields may have value as sources of analogies and models. Sometimes even remote analogies and very simple models can be helpful.

However, their predictions are generally worthless.

Theories that make no predictions

It’s interesting to look at three subjects (ie sets of facts and theories) that don’t seem to make predictions – and certainly give little thought to either predictions or testing. They are Theology, critical theory and business studies.

Analysis shows surprising parallels between them.


Theology does not seem to make predictions. Most theology is aligned with a single major religion, or even a denomination or sect, though some ideas are shared. Theology has existed as a discipline for at least 1,500 years and has shown some evolution. However it doesn’t seem to show much progress.

Theology has three fundamental problems:

· There’s doubt as to whether its subject matter – God – actually exists. Even saints and eminent churchmen have expressed doubts on this matter (though not usually in public).

· There’s no agreement as to how theological ideas are to be tested. Ideas may be tested against holy books (but which?), or tradition (which?) or personal revelation (whose?). Without this agreement progress is probably impossible.

· The views of scholars can be overruled by the official utterances of religious leaders.

Theology is thus the projection of religious feelings into the realm of reason and morals. There seems no reason to expect that such feelings will be good guides to the nature of reality and thus it should not be judged by its ability to produce predictions.

How it should be judged is another matter – and not one to which I have an answer. However, unless theologians can produce an answer it seems difficult to see why anyone should pay it any attention.

Critical theory

Critical theory is a collection of theories used by scholars in the humanities. These theories include Marxism, psycho-analysis and post-structuralism. An introduction to critical theory will mention several dozen theories. It’s immediately clear to an interested outsider that this isn’t at root a quest for truth in the sense that the sciences are. For while science has many controversies – and occasional feuds – these eventually get resolved with the successful theories being consolidated into the larger body of science. This hardly happens in critical theory – though some theories have become unfashionable.

If critical theory is not a quest for truth what is it? Critical theory is, I believe, a form of politics. Its theories reflect, often explicitly, political movements in society. They are the projection of those movements and issues into the analysis of cultural products such as books, films and clothes. Now to the degree that this analysis is right it should not be judged by its ability to produce predictions but by its ability to produce social change. That’s not a judgement that I shall attempt here.

Business studies

I use the term business studies to cover research and analysis published by business schools and management consultancies. There is a great deal of such material and the quality varies greatly.

· Some is rigorously empirical. It treats businesses as phenomena whose behaviour can be studied. This can lead to predictions. The results of testing such predictions are reported VERY occasionally.

· Some of this material is usefully analytical. That is, it dissects a significant business problem in order to identify threats, opportunities and constraints. It can be useful to managers without making predictions.

· Much, however, is weak. It takes a small number of examples – often selected on no clear basis – and draws conclusions that seem largely subjective.

As with theology and critical theory there’s plenty of change but little clear progress. There’s little evidence of an accumulation of agreed facts and theories and little referencing of the work of others. Often the same ideas appear at different times under different names.

Furthermore, names are often used by consultancies and research houses as sub-brands and there are real material rewards for consultants and analysts who create names that are adopted by the market. Thus the published material often reflects the competition between business schools, for students, and between consultancies, for clients. (Such competition is not absent in theology and critical theory but it is more marked here.)

If business studies is judged by the volume of valid predictions it performs poorly but many analysts and consultants would say that that is not its main purpose. Its purpose, they would say, is to recommend actions. How, then, should such recommendations be judged?

It is possible – medicine has the same purpose. Recommendations should be judged by their outcomes. This, however, is typically very difficult. The number of companies adopting any given recommendation may be small – and they may be taking other initiatives in parallel. And they may well treat all their initiatives as confidential.