THE ILLUSION OF UNDERSTANDING
Nassim Taleb, in The Black Swan, introduced the notion of a narrative fallacy to describe how flawed stories of the past shape our views of the world and our expectations for the future. Narrative fallacies arise inevitably from our continuous attempt to make sense of the world.
Consider the story of how Google turned into a giant of the technology industry. Two creative graduate students in the computer science department at Stanford University come up with a superior way of searching information on the Internet. They seek and obtain funding to start a company and make a series of decisions that work out well. Within a few years, the company they started is one of the most valuable stocks in America, and the two former graduate students are among the richest people on the planet.
I intentionally told this tale blandly, but you get the idea: there is a very good story here. Fleshed out in more detail, the story could give you the sense that you understand what made Google succeed; it would also make you feel that you have learned a valuable general lesson about what makes businesses succeed. Unfortunately, there is good reason to believe that your sense of understanding and learning from the Google story is largely illusory.
Like watching a skilled rafter avoiding one potential calamity after another as he goes down the rapids, the unfolding of the Google story is thrilling because of the constant risk of disaster. However, there is foр an instructive difference between the two cases. The skilled rafter has gone down rapids hundreds of times. He has learned to read the roiling water in front of him and to anticipate obstacles. There are fewer opportunities for young men to learn how to create a giant company, and fewer chances to avoid hidden rocks—such as a brilliant innovation by a competing firm. Of course there was a great deal of skill in the Google story, but luck played a more important role in the actual event than it does in the telling of it.
I have heard of too many people who “knew well before it happened that the 2008 financial crisis was inevitable.” This sentence contains a highly objectionable word, which should be removed from our vocabulary in discussions of major events. The word is, of course, knew. Some people thought well in advance that there would be a crisis, but they did not know it. They now say they knew it because the crisis did in fact happen. This is a misuse of an important concept. In everyday language, we apply the word know only when what was known is true and can be shown to be true. We can know something only if it is both true and knowable. But the people who thought there would be a crisis (and there are fewer of them than now remember thinking it) could not conclusively show it at the time.
The core of the illusion is that we believe we understand the past, which implies that the future also should be knowable, but in fact we understand the past less than we believe we do. Know is not the only word that fosters this illusion. In common usage, the words intuition and premonition also are reserved for past thoughts that turned out to be true. The statement “I had a premonition that the marriage would not last, but I was wrong” sounds odd, as does any sentence about an intuition that turned out to be false. To think clearly about the future, we need to clean up the language that we use in labeling the beliefs we had in the past.
TOPIC: #CognitiveBiases
SOURCE: Thinking, Fast and Slow by Daniel Kahneman