Welcome to the Chamber of Horrors

It’s odd to criticise pedlars of horror scenarios for the eurozone when, compared to the pre-crisis situation, the zone is already in one. But it gets worse than this. In the internet, apocalyptic hooves seem to have trampled everything from the provocative blogs to the conservative press. Nothing short of a complete collapse of the financial system will satisfy them. One stately European newspaper, in its print version no less, elaborated a tale of Titanic proportions recently. It was an intricately-woven string of “if-then” events that rung eerily prescient even though I know that the failure of a single one of those events to occur would cause the entire scenario to come tumbling down like a house of cards.

It is a curious fact that the more detailed and colourful a scenario, the more people are likely to pay it attention and to lend it credibility. That is precisely why fortune sellers[1] prefer to build scenarios when making economic forecasts: they want to be believed. However, it is the detailed scenario that is the least likely to be correct. Take the example of a simple “if-then” scenario consisting of three events that must co-occur to wreak havoc. Even if the probability of each individual event is a lofty 80 percent, the probability of havoc is not much better than fifty-fifty.[2]  Yet, even as the probability falls, up goes the believability.

The internet is not to blame for the preponderance of doom-mongers, but it has changed the chances of my coming across them. I remember, back in early 2001, a book publisher friend of mine refused to print collection of predominantly gloomy economic essays because he was convinced the book would not sell. Today, there are fewer gatekeepers; with a few clicks, I could come up with a handful of really worrying predictions. Even if they are all broadly similar, and they all reflect a view that I hold anyway, the impact is far from benign. Instead, the human tendency is not to see each instance as duplication, rather it is to see each as a confirmation. This nudges us towards an opinion that is more extreme than our original position.

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