Subprime: A Predictable Surprise

Michael Watkins on how the subprime crisis provides another textbook example of the theory of predictable surprises and how to prevent the disasters they bring

In 2004, my colleague Max Bazerman and I published Predictable Surprises: The Disasters You Should Have Seen Coming and How to Prevent Them. We defined "predictable surprises" as problems that (1) at least some people are aware of, (2) are getting worse over time, and (3) are likely to explode into a crisis eventually but are not prioritized by key decision-makers or have not elicited a response fast enough to prevent severe damage. We supported our thesis with detailed analyses of the September 11 attacks, the collapse of Enron, and the war in Iraq.

While embraced by many, our work on predictable surprises came under predictable attack. "Hindsight is 20:20" the critics said. In response, Max and I were able to point to specific instances where we had accurately predicted major problems: Max wrote about congressional testimony on conflicts of interest in the auditing of public companies, and I had written about the dire consequences of an invasion of Iraq for me. But some critics remained unmoved.

Read Complete Story