Before California Assemblyman Bill Filante made a bid for Congress in 1992, we enjoyed several conversations about our culture and how poorly we understand probability.
Random numbers are misunderstood as folks buy lottery tickets of astronomical odds. The late assemblyman was staunchly against government lottery, not merely because State lotteries pilfer pockets, but because he worried about a wasting of purpose.
Government, he asserted, must never operate a program that will require ignorance of its citizens.
We must teach each other the vast difference between what’s likely and what’s random. After pulling the handle for a few coins, we must learn how ingeniously we convince ourselves that the next bet will deliver a few more coins and, as if lubricating Providence, one more bet will gift our riches and our deserved relief.
We make errors whenever we believe what we fail to measure. We too often make errors of assumption in our gambit to read trends and decipher patterns. Major policy changes and significant spending are often based on quick conjecture that we trammel into winning consensus. We easily let ourselves tweak models by removing complexity, ignoring ambiguity and failing to capture fringe events.
We trick ourselves if we do not understand probability,
because we find reasons where none exist.
Discovery is most often by accident. Many breakthrough inventions were unintended. It may be that randomness has better luck than most research.
Is it better when we try to evaluate stock markets? Known by ‘The Black Swan’ and reminding us about the unsteadiness of circumstances, Nassim Nicholas Taleb may be Wall Street’s principal dissident. [wiki]
“My major hobby is teasing people who take themselves and the quality of their knowledge too seriously and those who don’t have the guts to sometimes say: I don’t know….”
Replying to eager investors, Taleb accounts for upsetting conventional views when he says, “Let us understand the true odds of financial ruin, so we can enter the markets prepared.” His book Fooled by Randomness is selected by Fortune as one of “The Smartest Books of All Time”.
Some say Taleb’s caution requires a new understanding of what we call heroic…
“The truth is that we associate the willingness to risk great failure – and the ability to climb back from catastrophe – with courage. But in this we are wrong. That is the lesson of Nassim Taleb and the lesson of our volatile times.
“There is more courage and heroism in defying the human impulse, in taking the purposeful and painful steps to prepare for the unimaginable.” – Malcolm Gladwell, The New Yorker, April 2002
Arlene Goldarb says that Taleb’s sense of our problem is that we do not know how much we don’t know. “What Taleb has already given me are much better reasons than my own instincts to do two things I’ve been advocating loud and long: distrust predictions and question theories.”
Thinking about how we look at our historical achievements, she repeats Taleb’s assertion that ‘… almost all of the discoveries that have had tremendous impact on our culture were accidents in the sense that they were discovered while searching for something else. He’s said, “most of what people were looking for, they did not find. Most of what they found they were not looking for.”
Forbes has published an essay where Taleb reminds us again that, “Things, it turns out, are all too often discovered by accident–but we don’t see that when we look at history in our rear-view mirrors. The technologies that run the world today (like the Internet, the computer and the laser) are not used in the way intended by those who invented them. Even academics are starting to realize that a considerable component of medical discovery comes from the fringes, where people find what they are not exactly looking for.
The Economist reviews The Black Swan, noting that “Humans are bad at factoring in the possibility of randomness and uncertainty. We forget about unpredictability when it is our turn to predict, and overestimate our own knowledge.”
The Telegraph says “it turns out, we humans prefer to work with predictions and forecasts, even when they are nearly always wrong.”
The above is primarily a re-post from 2006. I’ve been thinking about whether we gamble our future and I remembered Taleb’s warnings about certainty.
As if policies are randomly drawn out of a hat to only deter criticism, I’ve been annoyed about the quickdraw corn ethanol policy that may inadvertently be causing massive increases in feed and food costs. I’ve been worrying about commodity inflation as improving living conditions around the world legitimately increase demand while we fail to install adequate productivity for our basic industries. And are we spending more to be green than living well with less?
I’ve been worried about our governments. Too many players are relying on simple popularity and I worry that ordinary majorities do not look deeply into issues and too easily can lift the foolish. To be a wise population, we need adequate knowledge and robust discussion. Otherwise, we fib about weaponry and see threats in our shoes, treat rare disease and ignore pestilence, favor the elite and ignore the desperate….
We seem to be convinced that we can fund a war against a random event. In puny numbers, ugly terrorists are costing us the budgets of centuries because their unknown steps and devious surprise is the power of their terror. It’s the old saw about the enemy we know….
We’ve shown that we do not honestly account for unknown factors.
The other night while playing remote roulette, I saw Donald Rumsfeld on television declaring there were many factors evaluated while establishing our current policies for war. He said something similar to this:
‘We have considered the known known and the known unknown.
We just don’t know about the unknown unknown.’