In “Part 3: Overconfidence” of Daniel Kahneman’s Thinking Fast and Slow we delve into chapter 19 – “The Illusion of Understanding”. Here we are introduced to Nassim Taleb’s Black Swan theory  which describes human’s tendency to shape our world views based on rare and misinterpreted events of the past. Kahneman goes on to describe the story of Google’s success as an example. The original founders were blessed more with luck than with the many superior attributes for which everyone looks to now for guidance in acquiring such success for themselves. If the founders had received a mere one million dollars they wanted for the purchase of their product – their story would have ended there but they didn’t (bad luck for Yahoo) and so they persevered and we have today an incredible success story.

When looking back at great stories, they become much more intwined with intent, talent, and intelligence than with what is more often than not, just an anomaly of luck. People want answers, they want to learn from these stories. If it’s just a story about luck, than it in no way can effect their lives, their future, their wealth. As they say, hindsight is 20/20 but Kahneman discusses in a subsection, “The Social Costs of Hindsight” how the human mind is inclined to create narratives about the past to make sense of it but then mistakenly uses these false life lessons to predict the future. Not only do they recollect their own decisions differently based on the outcome of predicted events but they don’t even recall their original viewpoint. Their final viewpoint is completely altered. If an event had a bad outcome, they will have seen that outcome and had a more negative view of it originally (impossible). If the event had a very good outcome, they will have thought that beforehand and knew that was the better way beforehand (impossible). Even if you tell them what they originally thought, they will be sure that you are incorrect and they were on the right side of history with their amazing foresight and deep feelings that it was going to go that way, all along.

This is especially dangerous in jury outcomes – as the punishment will be dependent upon the outcome rather than the intention. Negative outcomes result in more negative impression about the doctor, or the device, or whoever there is to blame. Remember, we like blame – that is, a cause. We don’t understand or feel good about unclear reasons. We need to have closure by punishing the entity that is to blame. Kahneman sates that, “hindsight is especially unkind to decision makers who act as agents for others – physicians, financial advisers, third-base coaches, CEOs, social workers, diplomats, politicians” (p. 203). He refers to this as, “outcome bias” and states that this can unfortunately lead to rewarding “undeserved” and “irresponsible risk seekers” (p. 203-204). He actually states back in 2011 that, “a few lucky gambles can crown a reckless leader with a halo of prescience and boldness” which might be illustrated in the current president, his experiences, and his reputation (p. 204). Kahneman describes, as an example of an irresponsible risk taker, “an entrepreneur who took a crazy gamble and won” and “leaders who have been lucky are never punished for having taken too much risk” (p. 204). “They are believed to have had the flair and the foresight to anticipate success, and the sensible people who doubted them are seen in hindsight as mediocre, timid, and weak” (p. 204).

He mentions something else that may be pertinent in this political environment and that is that, “we all have a need for the reassuring message that actions have appropriate consequences, and that success will reward wisdom and courage” (p. 205). The human mind is inclined toward hindsight’s illusionary tendencies because we find it comforting to feel we “can predict and control the future” (p.205). Of course, real statistics will tell us we can’t. Rare weird things happen more often than we like to accept and regression to the mean is one statistic we can count on.  So next time you start looking for a causal link, remember the problem of induction , the power of luck, and “the inevitability of regression” to the mean (p. 207). 

 

References

Kahneman, D. (2011). The Illusion of Understanding. In Thinking Fast and Slow  (pp. 199-208). New York, NY: Farrar, Straus and Giroux.

Taleb, N. N., (2010). The Black Swan: Second Edition: The Impact of the Highly Improbable Fragility. New York, NY: Random House.

Vickers, John, “The Problem of Induction”, The Stanford Encyclopedia of Philosophy (Spring 2016 Edition), Edward N. Zalta (ed.), URL = <https://plato.stanford.edu/archives/spr2016/entries/induction-problem/&gt;.