LOGIC AND THE SCIENCE OF PREDICTING THE FUTURE

Few days ago I was sewing my sweater to cover two holes in the elbow of the sleeves with a patch. To do such thing you have to put one hand inside the sleeve and to sew without looking the needle, but only “feeling” it with your fingers. Since you cannot see it, you have to calculate and to guess where it will get out of the woven. I call it a type of prediction.

 

The patch on the sleeve of my sweater. Can you easily calculate where the needle will come out?

What is logic? I think as something as “logical” when it follows a rule of cause-effect and it is a way to demonstrate or discover something true. Logic is the way to seek the truth and understand the reality of things. As Aristotle says, analytical – or logical – reasoning is demonstrative and impersonal. The reasoning is a scientific evidence to prove the truth, which is unchangeable no matter who is the listener.

My question is: If I apply all rules of logic, can I predict the future? Can I predict how the day of tomorrow will unfold? Can I predict elections' outcome? Can I predict the stock market performance? Fundamentally, I think it is possible – at least to some point.

Of course no prudent man will ever guarantee the future, neither a portfolio manager will declare how much his investment fund will perform in one year time. The law requires all financial institutions to say ahead of a investment that “past performance is not indicative of future results”. We can all agree on that. It is a fact of life that the future is unknown and we all accept that. We can only rely on one person's claim that a fact in the future will happen as long as he has control and power over its happening. We all trust our partner's promise that she will bake a cake for our birthday party or a student will graduate next session. They all have enough power over their situation to make it possible. But what happen when we have no control over the outcome? Can we predict it?

Ideally I believe it is possible. I agree with the quant hedge fund funder Jim Simons when he says that “past performance is indicative of future results”. The issue is not whether we have control over the outcome, but if we know all variables that determine the structure of the question. It is the knowledge or the ability to predict where the needle will get out of the patch without being able to see it. We can predict how the day of tomorrow will unfold if we know what all people will do, who will encounter who and what, how they will respond to their interrelation, what will be the weather, their boss' requests, their partner reaction. If we know all people habits, how they respond to change, requests and challenge, I believe it is possible to build a reliable model of the future. (On the idea that life is nothing but a bunch of habit, read C. Duhigg, The Power Of Habits, ch. 1 and 7).

One useful and money-making field where to build a model of the future is the financial investments. What determines the value of a stock? I will work on that on the following days. (Ehi, I have control over that, so I can predict it!).

UPDATE. Hey, I wrote Inquiry over Logic of Investments. Any idea?