When to Use Forecasting for Decisions

seldom needed, but don't neglect it when it is

Making a forecast isn’t always the best use of time when making a decision. Most of the time, we’re better off either planning for the worst-case scenario or relying on rules or experts with proven track records. However, there are specific scenarios where investing effort into a structured forecasting process can lead to significantly better outcomes. Let's explore a framework to determine whether to fortify, follow, or forecast when faced with an important decision. By identifying when forecasting truly matters, you can apply it effectively to achieve better results.

Fortify: Prepare for Worst-Case Scenarios

Some decisions are too critical to leave to chance. Take, for example, planning your route for a job interview where traffic could take anywhere from 30 to 60 minutes. Even if you’re 90% confident you can get there in 45 minutes, the stakes are too high to risk being late. In such cases, the precise forecast doesn’t matter, whether the worst-case scenario is a 5% or 50% likelihood, you still plan for it because the stakes are too high. You give yourself 60 minutes to ensure punctuality because the cost of failure is unacceptable. Whether it’s emergency preparedness or ensuring you’re on time for an important event, the goal is to mitigate risks and safeguard against unacceptable outcomes.

Follow: Rely on Rules and Experts

In some domains, experts provide highly reliable forecasts, such as weather predictions. Meteorologists are well-calibrated experts with an empirical track record of accuracy. For example, if you’re planning a beach trip for the weekend and deciding between Saturday and Sunday, it’s practical to trust the weather report to make your choice. Their reliability makes it unnecessary to attempt to outperform them yourself.

Similarly, when the stakes are low and you have personal experience to rely on, following rules that have led to positive outcomes in the past can simplify decisions. For instance, if your favorite restaurant is usually uncrowded on Wednesdays and often features your preferred special, you might choose to dine there based on this reliable pattern. Such rules offer a practical and time-efficient way to navigate everyday choices without overanalyzing.

In both cases, empirical track records guide the decision, offering a reliable foundation for making choices efficiently and effectively.

Forecast: Use Best Practices to Make the Best Decision

Unfortunately, many questions in life are nuanced and involve complicated tradeoffs that don't come with convenient expert solutions. Sometimes the best path forward isn't obvious. Major life decisions, like whether to move to a new city, require personal foresight and deliberate analysis. Follow the most important rule of forecasting and start by gathering base-rate information: What are typical salaries in your field for that city? How happy are people who live there?

For example, if 70% of people in your field who moved to Austin saw their real income increase within two years, that's more informative than your gut feeling about the city's prospects.

Use these data points to anchor your forecast, as base-rate statistics about others’ experiences are often more reliable than your own subjective feelings. People frequently overweight their own predictions about how they’ll feel ("I'll definitely love the weather!"), but trusting what has been true for others is usually a better guide for decision-making.

Why This Matters

Most people are already pretty good at fortifying—planning for worst-case scenarios where the stakes are high (okay, fine, maybe they’re not great with tail risks, but that’s a topic for another post). And unless you’re part of the crowd who thinks wrestling is real, but the moon-landing is fake, you’re probably already mostly following empirically-validated strategies where you should too (another post about how to know which experts to trust is coming soon… HINT: empiricism).

The real opportunity lies in that third category: people rarely take the time to forecast deliberately even when doing so could lead to much better outcomes. Think of the last time you made a major career move - did you look up the base rates for success in similar transitions? Or consider someone choosing between grad school options - how often do they gather systematic data on career outcomes versus just following their gut? By recognizing these opportunities to forecast more carefully, you can make significantly better decisions in areas that really matter.

Forecasting isn't merely about predicting the future; it's a tool for making smarter decisions today by reducing uncertainty and aligning actions with desired outcomes. The next time you face a decision, ask yourself: Should you prepare for the worst case, trust reliable experts, or dive into forecasting? By using this framework and leveraging available data, you can approach uncertainty with clarity and confidence, ultimately improving your results.