The Black Swan: The Impact of the Highly Improbable

I have tested myself and, sure enough, failed, even while consciously trying to be humble by carefully setting a wide range—and yet such underestimation happens to be, as we will see, the core of my professional activities. This bias seems present in all cultures, even those that favor humility—there may be no consequential difference between downtown Kuala Lumpur and the ancient settlement of Amioun, (currently) Lebanon. Yesterday afternoon, I gave a workshop in London, and had been mentally writing on my way to the venue because the cabdriver had an above-average ability to “find traffic.” I decided to make a quick experiment during my talk.

I asked the participants to take a stab at a range for the number of books in Umberto Eco’s library, which, as we know from the introduction to Part One, contains 30,000 volumes. Of the sixty attendees, not a single one made the range wide enough to include the actual number (the 2 percent error rate became 100 percent). This case may be an aberration, but the distortion is exacerbated with quantities that are out of the ordinary. Interestingly, the crowd erred on the very high and the very low sides: some set their ranges at 2,000 to 4,000; others at 300,000 to 600,000.

True, someone warned about the nature of the test can play it safe and set the range between zero and infinity; but this would no longer be “calibrating”—that person would not be conveying any information, and could not produce an informed decision in such a manner. In this case it is more honorable to just say, “I don’t want to play the game; I have no clue.”

It is not uncommon to find counterexamples, people who overshoot in the opposite direction and actually overestimate their error rate: you may have a cousin particularly careful in what he says, or you may remember that college biology professor who exhibited pathological humility; the tendency that I am discussing here applies to the average of the population, not to every single individual. There are sufficient variations around the average to warrant occasional counterexamples. Such people are in the minority—and, sadly, since they do not easily achieve prominence, they do not seem to play too influential a role in society.

Epistemic arrogance bears a double effect: we overestimate what we know, and underestimate uncertainty, by compressing the range of possible uncertain states (i.e., by reducing the space of the unknown).

The applications of this distortion extend beyond the mere pursuit of knowledge: just look into the lives of the people around you. Literally any decision pertaining to the future is likely to be infected by it. Our human race is affected by a chronic underestimation of the possibility of the future straying from the course initially envisioned (in addition to other biases that sometimes exert a compounding effect). To take an obvious example, think about how many people divorce. Almost all of them are acquainted with the statistic that between one-third and one-half of all marriages fail, something the parties involved did not forecast while tying the knot. Of course, “not us,” because “we get along so well” (as if others tying the knot got along poorly).

I remind the reader that I am not testing how much people know, but assessing the difference between what people actually know and how much they think they know. I am reminded of a measure my mother concocted, as a joke, when I decided to become a businessman. Being ironic about my (perceived) confidence, though not necessarily unconvinced of my abilities, she found a way for me to make a killing. How? Someone who could figure out how to buy me at the price I am truly worth and sell me at what I think I am worth would be able to pocket a huge difference. Though I keep trying to convince her of my internal humility and insecurity concealed under a confident exterior; though I keep telling her that I am an introspector—she remains skeptical. Introspector shmintrospector, she still jokes at the time of this writing that I am a little ahead of myself.

BLACK SWAN BLINDNESS REDUX

The simple test above suggests the presence of an ingrained tendency in humans to underestimate outliers—or Black Swans. Left to our own devices, we tend to think that what happens every decade in fact only happens once every century, and, furthermore, that we know what’s going on.