Thursday, April 21, 2016

Plans, forecasts and estimations

Forecast about energy consumption
The media, and sometimes even serious publications, often mistake the use of the three terms in the title of this post. In his book Small is Beautiful: Economics as if People Mattered (1973) E.F.Schumacher explains their differences:
We talk happily about estimating, planning, forecasting, budgeting, about surveys, programmes, targets, and so forth, and we tend to use these terms as if they were freely interchangeable and as if everybody would automatically know what was meant. The result is a great deal of confusion, because it is in fact necessary to make a number of fundamental distinctions. The terms we use may refer to the past or to the future; they may refer to acts or to events: and they may signify certainty or uncertainty.
According to Schumacher, combining the three different binary components (act-event; past-future; certain-uncertain) we have 8 possibilities:

1.      Act Past Certain: as the murder of Julius Caesar.
2.      Act Future Certain: as the railway departure times. Can be taken into account in a plan.
3.      Act Past Uncertain: can be estimated, refers to some act that may have been performed in the past, but is not certain.
4.      Act Future Uncertain: as tomorrow I might be discharged from the hospital. Can be planned for, or its probability estimated.
5.      Event Past Certain: as the Fukushima disaster.
6.      Event Future Certain: as tomorrow’s high tide will be at such an hour.
7.      Event Past Uncertain: can be estimated, refers to some event that may have happened in the past, but is not certain.
8.      Event Future Uncertain: as tomorrow the weather will be fine. Can be forecasted, or the probability estimated that it will take place.
With this in mind, we can distinguish the three concepts in the title of this post:
·         Plans normally apply to future acts under the control of the planner with some degree of certainty (the planner assumes that the plan will be executed), but also a degree of uncertainty. They correspond to combinations 2 and 4.
·         Forecasts normally apply to future events not under the control of anyone, with a degree of uncertainty. They correspond to combination 8.
·         Estimates apply to uncertain past and future actions and events. Note that we do not know everything about the past. They correspond to combinations 3, 4, 7 and 8.
·         Exploratory calculations: If so and so happens, it would take us there. Being a conditional, it can be assigned a mathematical certainty.
The numner of crosses in the Hill of Crosses (Lithuania)
is estimated to have reached 100.000 in 2006
Moreover, we must bear in mind that some things are predictable, provided we have sufficient knowledge of the past (such as the fact that the sun will rise tomorrow). Others, however, especially those involving human freedom, either are not predictable, or are partly predictable (as the performance of large numbers of people). Let us quote Schumacher again:


We can therefore distinguish as follows:
1.      Full predictability (in principle) exists only in the absence of human freedom, i.e. in 'sub-human' nature. The limitations of predictability are purely limitations of knowledge and technique.
2.      Relative predictability exists with regard to the behaviour pattern of very large numbers of people doing 'normal' things (routine).
3.      Relatively full predictability exists with regard to human actions controlled by a plan which eliminates freedom, e.g. railway timetable.
4.      Individual decisions by individuals are in principle unpredictable.
To end this post, let us listen to Schumacher speaking about human freedom and the desire of many thinkers to deny its existence, something we have discussed in a couple of previous articles in this blog, which he attributes to the wish to avoid responsibility:
The future, therefore, is largely predictable, if we have solid and extensive knowledge of the past. Largely, but by no means wholly, for into the making of the future there enters that mysterious and irrepressible factor called human freedom... Strange to say, under the influence of laboratory science many people today seem to use their freedom only for the purpose of denying its existence. Men and women of great gifts find their purest delight in magnifying every 'mechanism', every 'inevitability', everything where human freedom does not enter or does not appear to enter. A great shout of triumph goes up whenever anybody has found some further evidence -- in physiology or psychology or sociology or economics or politics -- of unfreedom, some further indication that people cannot help being what they are and doing what they are doing... The denial of freedom, of course, is a denial of responsibility: there are no acts, but only events; everything simply happens; no-one is responsible.
It is the intrusion of human freedom and responsibility that makes economics metaphysically different from physics and makes human affairs largely unpredictable... In principle, everything which is immune to the intrusion of human freedom, like the movements of the stars, is predictable, and everything subject to this intrusion is unpredictable. Does that mean that all human actions are unpredictable? No, because most people, most of the time, make no use of their freedom and act purely mechanically... Yet all really important innovations and changes normally start from tiny minorities of people who do use their creative freedom.

Manuel Alfonseca

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