Irving Fisher was perhaps the greatest economist who ever lived; he was certainly, for a time, the
most famous economist in the world. These days, however, the few people who remember Fisher’s
name know just one thing about him: that late in 1929, he announced that “Stock prices have
reached what looks like a permanently high plateau.” The Wall Street crash began a couple of weeks
later, wiping 89 per cent off the value of shares. Irving Fisher had been a rich man but lost both his
fortune and his reputation.
I draw two lessons from the sad story of Irving Fisher.
The first that economists should be wary about making forecasts and everyone else should be wary
about requesting them. Fisher was a truly brilliant economist; his forecasting failure doesn’t change
that. But he should have known his limits. Economics is so much more than forecasting: it’s a way
of understanding everything from the price of a cup of coffee to how to beat climate change. I give
talks about innovation, big data, organisational change – and even how to triumph at speed dating –
and all of that is informed by economics. But please don’t ask me to tell you when interest rates will
The second lesson is that we can learn a lot from studying mistakes. Our errors can be funny or
tragic but they always offer lessons. One of my talks discusses Piper Alpha, a horrendous accident
in the North Sea – and draws lessons for reform of the banking sector. Another looks at the way the
US army gradually learned from its mistakes in Iraq – and the unexpected source of that impetus for
change. But I also discuss what we can learn from the mistakes people make when they play “Deal or
No Deal”, the TV game show.
It is possible to see into the future – at least sometimes – but the latest psychological research
shows that one of the key tools for any forecaster is the ability to face up to his own mistakes. That’s
terribly hard, as Irving Fisher demonstrated by borrowing more and more money to bet on a stock
market revival that never came.
Fisher’s academic rival, John Maynard Keynes, also failed to foresee the crash – yet he died a
millionaire. How? Well, Keynes famously remarked that “when my information changes, I alter my
conclusions. What do you do?” If only he’d taught that lesson to Irving Fisher.