People are obsessed with making forecasts. Designers, stylists, buyers, editors: their careers and their wealth depend, in one way or another, on their ability to predict future outcomes. And yet when you really analyze the track-records of expert judgment, you’ll discover that there is scant evidence that ‘experts’ have any clue about what they’re talking about. Statisticians who have studied the accuracy of prediction show that the majority of experts did no better than a coin flip. And when it comes to forecasting really consequential events (like stock market moves or elections - or even the next ‘it’ designer or actress), ‘pundits’ do about as well as taxi-drivers or government bureaucrats.
A really interesting book called The Black Swan (2007) tackles the topic of faulty forecasting and demonstrates that trends and meaningful events are generally unforeseen and typified by random processes.
Recent history is filled with instances of unforeseen events - most notable, 9/11- that had a major consequential outcome. Jason Wu’s instant rise to stardom is another example. Smaller shocks, such as novels and pop acts whose popularity explodes thanks to word of mouth, can also be black swans.
They come in the form of events or trends that are unexpected, have an extreme impact and are made to seem predictable by explanations concocted after the fact (especially by the press and ‘forecasters’).
The fashion industry (like the finance industry) is strewn with myriad institutions devoted to making ‘accurate’ prognostications about the future. Companies like WGSN, StyleSite and Drella NYC (who charge huge fees to ‘guesstimate‘) continue to try, churning out forecasts on everything from the price of silk jerseys and the coolest knitwear to the next Karl Lagerfeld. And while their efforts are laudable (and certainly interesting), they often fail to map the future with precision - or even at all.
In finance, analysts use the notorious ‘black box’ models: Value at Risk, Monte Carlo simulation, etc. In fashion, trend-forecasters rely on ‘synthesis and intuition.’ WGSN’s website, for instance, says it integrates ‘real-time information, experience and instinct to predict which trends are due to peak, and when.’ The site boasts:
“We don’t just look out the window and tell you it’s raining. We predict the cultural climate weeks, months, even years in advance — so you can plan for the future.”
Even though these are inductive approaches, the results are often fuzzy or just plain wrong. Perhaps there is something inherently flawed in forecasters’ outlooks and they need a better methodology.
But in The Black Swan: The Impact of the Highly Improbable, Nassim Taleb offers an alternative view. Forecasters, he argues, are definitely flawed: they are overconfident, short-sighted, and overly committed to a particular perspective on the world. But the main reason that their predictions fall short is because forecasting is, straight up, impossible. The future - or at least the things that really matter - is, by its nature, truly random. Fashion crystal balls don’t exist nor can we construct models that correspond to future outcomes (we merely ‘satisfice‘). Randomness, in fact, is the name of the game and in industries like fashion design and stock trading, it is much too difficult to correctly predict the future.
I’ve been obsessed with this book for a while now and think about the theme of ‘randomness’ day and night, applying it to everything from my own fashion/style outlook to personal investing (and, yes, even dating).
Randomness, as such, permeates our lives. It is especially alive in things like fashion and finance. To justify ‘unknown unknowns’ we tend to apply pattern and causality where neither exists. Take a stroll down Bleeker Street or Saville Road and notice all the green palettes and structured tailoring. The conclusion: green is the new black and structured tailoring is the new new (“and, duh, wasn’t it obvious 6 months ago,” we tell ourselves).
Because we assume that what lies ahead will be much like the past, according to the Black Swan, we can discern from previous trends and events in order to know future outcomes. Working in fashion, for instance, I frequently hear references to some bygone era and how it is once more rearing its head (80‘s stuff, for example, is the trend du jour). But when you really consider how things unfold or how trends solidify, history isn’t the story of foreseeable, incremental change, whereby the past is an objective determinant of the future; rather, the historical process, broadly speaking, is about black swan events - that is, extreme, unfathomable outlier events that occur beyond the domain of regular expectations and have durable consequences.
Black swans permeate pop culture, fashion and business life. In fact, they are significant parts of all life - the ‘wrap dress,’ the invention of the internet, the recession, best selling books, Madonna and Michael Jackson, Perez Hilton - all qualify. While they are, by definition, rare and hard to predict events, black swans shape our world and our thinking.
But they are unpredictable because they represent a break with what has come before. And because the majority of trend-forecasters implicitly believe that the ‘Normal distribution’ dictates outcomes, they get unnerved by these outliers. Most interestingly, the Black Swan illustrates how incorrect forecasters have been in the past; the book shows how ‘subjective value judgments’ compound failures, and reminds us that we are stubborn about acknowledging past misjudgments.
The book also makes the point that black swans are problematic because, although prospectively unforeseeable, in hindsight they seem like they could have been predicted (hence, ‘green color ways’ and ‘structured tailoring’ or Pearl Harbor and 9/11). It is after the trend/event has emerged that we go back and identify clues and harbingers of what was going to occur; these clues, however, were indistinguishable from all the extraneous noise and escaped our attention.
For me, the swan evokes memories of Björk wearing Marjan Pejoski‘s outrageous dress at the Oscars in 2001. (A much easier thing to ponder than Taleb’s sophisticated theories on risk and randomness)! Anyway, fast forward to the present and swans seem to be all the rage - especially black ones.
Whether you are a fashionista or a quantitative trader, the Black Swan is terrific! It is, paradoxically, an inductive critique of induction. In particular, the book helps to understand things like risk, change and inflections in our culture - and serves as a great framework for thinking about the randomness of day-to-day life and the next outrageous trend.
-Cody Ross (cody@priestessnyc.com)
