Oily predictions

I propose a new business model. Make a seemingly outrageous long-range prediction. It could just be anything, but you might want to stick to the financial world. Once you have decided on the prediction to make, think up of about six possible reasons why this prediction could come true. Given that the prediction in itself is outrageous, it shouldn’t be hard for you to come up with six outrageous reasons to support the same.

Now, take your outrageous prediction and outrageous reasons and publish a paper. It should ideally be in a mid-table journal – the top journals will never accept anything this outrageous, and you won’t want too much footage for it also. A bad journal is not that bad, but with the future in mind, you would typically want to avoid those – they may not last till the time you want to real dividends. And it is important that your prediction is long-range. It should be far enough into the future that no one except you should be able to remember that you had made this prediction.

Just to lend your prediction some credibility, do one or two things that will signal that you take the thing seriously. For example, if you have predicted gold prices to rise, buy your wife loads of jewelry. Once all this has been done, save a copy of the journal in your safe, and get back to work.

In all probability your prediction won’t come true. Remember – it was outrageous. No harm with that. Just burn that journal in your safe (I mean take it out of the safe before you burn it). There is a small chance of your prediction coming true. In all likelihood it wont, but just in case it does, pull that journal out of that safe and call in your journalist friends. You will be the toast of the international press. You will be hailed in your native land. You can afford to quit your job now – for you can make enough for eight more lives by just lecturing on the after-dinner circuit.

This is one of the longest intros I’ve ever written to a blog post, so I’ll keep the body short. I’m talking about Arjun Murti. That banker from Goldman Sachs who was in the news a month back (now you know how long this post has been languishing in my head) for having predicted $100 a barrel oil way back in 2005. Everyone is hailing him to be the greatest economist to have never won the John Bates Clark medal (he is 39 now). I’m not so sure.

Now you may wonder what credibility a useless unemployed MBA (with 3 months experience in investment banking) sitting in Bangalore may have in order to challenge one of the world’s greatest economists of the day. I’m not asserting that Mr. Murti is not brilliant. All I say is that there is no guarantee that he is a genius. That the story, as presented to us by the mainstream media, leaves enough doubt in our heads to say that he just got lucky.

Maybe if he was a proprietary trader in commodities rather than being a research guy, we might have used data about his trades in order to see whether he was bluffing – if he knew what he was talking when he predicted $100 a barrel, he would’ve actively bought oil futures. Unfortunately, this data is not available to us. At this point there is no way to know if he really believed in his prediction or if he just got lucky.

Given the circumstances, Mr. Murti has made a big mistake. He has gone on to say that oil prices will hit $200 a barrel “soon” (I can’t get any dates on this statement). The problem with making another prediction after you’ve got one right is that now you are high-profile. The world knows you. Everyone has recorded this statement on the $200 thing. If the prediction doesn’t come true, he can’t just burn the journal in the safe. People will call his bluff. Even if he were an honest guy and truly got his prediction right this time, there is no guarantee it would come right the next time too.

Tailpiece: This post reminds me of one incident in 9th standard. Ramu, one little irritating guy in my class came to school one day and claimed to have invented a method for divisibility by 7 (a known hard problem). By lunch time, half the school had got convinced, including the senior most math teachers. Arrangements were made to get a correspondent from the Deccan Herald to come and interview this budding mathematician.

A while after lunch, I noticed a loophole in his argument. I remember spending most of the math class (sometime after lunch) arguing about this. Finally the others too noticed the loophole that I had pointed out. The DH interview got canceled. And my classmates decided to boycott me for a week for destroying the career of a budding young great mathematician.

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