Tetlock's three stages of prediction

This is from a presentation by Mike Mauboussin of Credit Suisse. The slide was developed from work by Phil Tetlock, the expert on decision-making.

There are three levels of prediction which helps explain why some forecasters are better than others. The first is cognitive or a superficial understanding of what is going on. Most investors fall in to this category. They read the newspaper, hear some views on the markets, and have some simple ideas on how markets work. The second level  is called associative which means we have the ability to make connections across time and with variables or factors that can effect the environment. This type of predictive skills links variables that are correlated. There is some degree of understanding between cause and effect and if the causes are not there, you will not get the result. The third or highest level is an ability to have autonomous thinking, a shrewdness to take linked facts and extrapolate into the future. There is an sense of anticipation. If certain events occur, there will be a likelihood of a certain result. Most of use do not get to this level, yet this is what we should be striving for