09 October 2011

The Folly of Linear Thinking #nlpoli

New Brunswick’s David Campbell has an interesting post about the folly of believing that things go in straight lines.

Like say, oil prices have been going up for a while now and will only go up in the future.

And therefore a hugely expensive electricity project makes sense because oil surely will always cost way more than it does now on a go forward basis.

Really it’s just a variation on part of the logic behind the 1969 Churchill Falls contract and the lack of an escalator clause.  If you can’t imagine the price of something going in one direction, you’ll bet on things going the other way.

It’s the same as assuming that oil prices will always be higher than a certain amount – say US$50  - and pegging extra cash to that number.

There are lots of examples of linear thinking out there: assume the future will look like today.

And it’s usually the best way to make a gigantic mistake.

- srbp -