In 1976, British statistician George Box wrote the famous line, "All models are wrong, some are useful."
This is a critical truism to keep in our minds as we build and share financial models.
There is only one thing you can say with any certainty about your model's output; it's not going to be what happens in reality. Don't mistake your modelling for an accurate prediction of the future.
A financial model is best thought of as a laboratory for testing business hypotheses. It allows us to ask useful "what-if" questions about complex business scenarios.
It does not predict the future. It helps you better understand what might have an impact on the future.
There are uncertainties in the underlying assumptions within every model. Often large uncertainties.
We live in a world filled with uncertainty, but we still need to understand what the future might look like as best we can and make decisions.
As Daniel Gilbert puts it:
The world doesn't have the luxury of waiting for complete answers before it takes action.
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