These are some of the tools and frameworks I work with and consider useful for understanding current trends and predicting future outcomes in industries and society:
- Cost-benefit analysis. One of the most useful microeconomic models in the “real world”. Anything can be analysed through a simple cost-benefit analysis.
- Natural selection and Darwinian evolution. Analyzing companies and market place trends by the likelihood that the most suitable will survive. See this John Kay FT op-ed about how Darwin’s principles of variation, selection and replication apply in today’s markets.
- Absolute futurism – that anything that brings us forward as a civilization is positive and should be chosen in the absence of other data points.
- High Beta outcomes. Choose the alternative that gives you a higher beta, all other constant.
- Regression to the mean. One extremely important thing to remember is, what all funds always stress in the disclaimer, “past performance is not an indicator of future performance”. I.e. if something has been performing well, it is more likely that it will perform less well, relative to its peers, in the future, rather than continuing its streak. This is counter-intuitive at first for many people, and I struggle myself to always remember it. Especially important when looking at financial instruments. This is related to why the stock markets and natural economics are intrinsically incompatible.
- Alternative viewpoints. This is a category of tools that include some of my favorites. Blue Ocean Strategy calls it Looking Across Alternative Industries. IDEO calls it Analogous Thinking (an integral part of design thinking). Edward de Bono called it lateral thinking. Financial Times calls it Red Team thinking (from Soviet era!). The ideas behind these are similar. Basically the idea is to look at alternatives and see what you can learn from them for your specific product/service/business/trend.
- Hybrid knowledge. Applying knowledge from another area to the problem at hand. Shows the necessity of being T-shaped in our current world. Taleb calls it being Anti-fragile.
- Archives hacking: Time frames for archives becoming public are becoming shorter and shorter. You can glean a lot of information about future geopolitical affairs from consulting previously secret archives. BBC is running an interesting series of documentaries analyzing UK Cabinet documents as they become available (now with a lag of only 20 years). It begs the interesting question of how to decide when a document should become unclassified. How much does the world have to change in order for this to become a safe move?