waiting for. Greg Barron and Ido Erev provide experimental evidence that
agents underweigh small probabilities when they engage in sequential experiments
in which they derive the probabilities themselves, when they are
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not supplied with the odds. If you draw from an urn with a very small
number of red balls and a high number of black ones, and if you do not
have a clue about the relative proportions, you are likely to underestimate
the number of red balls. It is only when you are supplied with their
frequency—say, by telling you that 3 percent of the balls are red—that you
overestimate it in your betting decision.
I've spent a lot of time wondering how we can be so myopic and shorttermist
yet survive in an environment that is not entirely from Mediocristan.
One day, looking at the gray beard that makes me look ten years
older than I am and thinking about the pleasure I derive from exhibiting
it, I realized the following. Respect for elders in many societies might be a
kind of compensation for our short-term memory. The word senate comes
from senatus, "aged" in Latin; sheikh in Arabic means both a member of
the ruling elite and "elder." Elders are repositories of complicated inductive
learning that includes information about rare events. Elders can scare
us with stories—which is why we become overexcited when we think of a
specific Black Swan. I was- excited to find out that this also holds true in
the animal kingdom: a paper in Science showed that elephant matriarchs
play the role of superadvisers on rare events.
We learn from repetition—at the expense of events that have not happened
before. Events that are nonrepeatable are ignored before their occurrence,
and overestimated after (for a while). After a Black Swan, such
as September 11, 2001, people expect it to recur when in fact the odds of
that happening have arguably been lowered. We like to think about specific
and known Black Swans when in fact the very nature of randomness
lies in its abstraction. As I said in the Prologue, it is the wrong definition
of a god.
The economist Hyman Minsky sees the cycles of risk taking in the
economy as following a pattern: stability and absence of crises encourage
risk taking, complacency, and lowered awareness of the possibility of
problems. Then a crisis occurs, resulting in people being shell-shocked and
scared of investing their resources. Strangely, both Minsky and his school,
dubbed Post-Keynesian, and his opponents, the libertarian "Austrian"
economists, have the same analysis, except that the first group recommends
governmental intervention to smooth out the cycle, while the second
believes that civil servants should not be trusted to deal with such
matters. While both schools of thought seem to fight each other, they both
emphasize fundamental uncertainty and stand outside the mainstream
economic departments (though they have large followings among busiTHE
NARRATIVE FALLACY 79
nessmen and nonacademics). No doubt this emphasis on fundamental uncertainty
bothers the Platonifiers.
All the tests of probability I discussed in this section are important;
they show how we are fooled by the rarity of Black Swans but not by the
role they play in the aggregate, their impact. In a preliminary study, the
psychologist Dan Goldstein and I subjected students at the London Business
School to examples from two domains, Mediocristan and Extremistan.
We selected height, weight, and Internet hits per website. The subjects
were good at guessing the role of rare events in Mediocristan-style environments.
But their intuitions failed when it came to variables outside
Mediocristan, showing that we are effectively not skilled at intuitively
gauging the impact of the improbable, such as the contribution of a blockbuster
to total book sales. In one experiment they underestimated by
thirty-three times the effect of a rare event.
Next, let us see how this lack of understanding of abstract matters affects
us.
The Pull of the Sensational
Indeed, abstract statistical information does not sway us as much as the
anecdote—no matter how sophisticated the person. I will give a few instances.
The Italian Toddler. In the late 1970s, a toddler fell into a well in Italy.
The rescue team could not pull him out of the hole and the child stayed at
the bottom of the well, helplessly crying. Understandably, the whole of
Italy was concerned with his fate; the entire country hung on the frequent
news updates. The child's cries produced acute pains of guilt in the powerless
rescuers and reporters. His picture was prominently displayed on
magazines and newspapers, and you could hardly walk in the center of
Milan without being reminded of his plight.
Meanwhile, the civil war was raging in Lebanon, with an occasional
hiatus in the conflict. While in the midst of their mess, the Lebanese were
also absorbed in the fate of that child. The Italian child. Five miles away,
people were dying from the war, citizens were threatened with car bombs,
but the fate of the Italian child ranked high among the interests of the
population in the Christian quarter of Beirut. "Look how cute that poor
thing is," I was told. And the entire town expressed relief upon his eventual
rescue.
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As Stalin, who knew something about the business of mortality, supposedly
said, "One death is a tragedy; a million is a statistic." Statistics
stay silent in us.
Terrorism kills, but the biggest killer remains the environment, responsible
for close to 13 million deaths annually. But terrorism causes outrage,
which makes us overestimate the likelihood of a potential terrorist
attack—and react more violently to one when it happens. We feel the sting
of man-made damage far more than that caused by nature.
Central Park. You are on a plane on your way to spend a long (bibulous)
weekend in New York City. You are sitting next to an insurance salesman
who, being a salesman, cannot stop talking. For him, not talking is the effortful
activity. He tells you that his cousin (with whom he will celebrate
the holidays) worked in a law office with someone whose brother-in-law's
business partner's twin brother was mugged and killed in Central Park. Indeed,
Central Park in glorious New York City. That was in 1989, if he
remembers it well (the year is now 2007). The poor victim was only thirtyeight
and had a wife and three children, one of whom had a birth defect
and needed special care at Cornell Medical Center. Three children, one of
whom needed special care, lost their father because of his foolish visit to
Central Park.
Well, you are likely to avoid Central Park during your stay. You know
you can get crime statistics from the Web or from any brochure, rather
than anecdotal information from a verbally incontinent salesman. But you
can't help it. For a while, the name Central Park will conjure up the image
of that that poor, undeserving man lying on the polluted grass. It will take
a lot of statistical information to override your hesitation.
Motorcycle Riding. Likewise, the death of a relative in a motorcycle accident
is far more likely to influence your attitude toward motorcycles than
volumes of statistical analyses. You can effortlessly look up accident statistics
on the Web, but they do not easily come to mind. Note that I ride
my red Vespa around town, since no one in my immediate environment
has recently suffered an accident—although I am aware of this problem in
logic, I am incapable of acting on it.
Now, I do not disagree with those recommending the use of a narrative
to get attention. Indeed, our consciousness may be linked to our ability to
concoct some form of story about ourselves. It is just that narrative can be
lethal when used in the wrong places.
THE NARRATIVE FALLACY 81
THE SHORTCUTS
Next I will go beyond narrative to discuss the more general attributes of
thinking and reasoning behind our crippling shallowness. These defects in
reasoning have been cataloged and investigated by a powerful research
tradition represented by a school called the Society of Judgment and Decision
Making (the only academic and professional society of which I am a
member, and proudly so; its gatherings are the only ones where I do not
have tension in my shoulders or anger fits). It is associated with the school
of research started by Daniel Kahneman, Amos Tversky, and their friends,
such as Robyn Dawes and Paul Slovic. It is mostly composed of empirical
psychologists and cognitive scientists whose methodology hews strictly to
running very precise, controlled experiments (physics-style) on humans
and making catalogs of how people react, with minimal theorizing. They
look for regularities. Note that empirical psychologists use the bell curve
to gauge errors in their testing methods, but as we will see more technically
in Chapter 15, this is one of the rare adequate applications of the bell
curve in social science, owing to the nature of the experiments. We have
seen such types of experiments earlier in this chapter with the flood in California,
and with the identification of the confirmation bias in Chapter 5.
These researchers have mapped our activities into (roughly) a dual mode
of thinking, which they separate as "System 1" and "System 2 , " or the experiential
and the cogitative. The distinction is straightforward.
System 1, the experiential one, is effortless, automatic, fast, opaque (we
do not know that we are using it), parallel-processed, and can lend itself
to errors. It is what we call "intuition," and performs these quick acts of
prowess that became popular under the name blink, after the title of Malcolm
Gladwell's bestselling book. System 1 is highly emotional, precisely
because it is quick. It produces shortcuts, called "heuristics," that allow us
to function rapidly and effectively. Dan Goldstein calls these heuristics
"fast and frugal." Others prefer to call them "quick and dirty." Now,
these shortcuts are certainly virtuous, since they are rapid, but, at times,
they can lead us into some severe mistakes. This main idea generated an
entire school of research called the heuristics and biases approach (heuristics
corresponds to the study of shortcuts, biases stand for mistakes).
System 2, the cogitative one, is what we normally call thinking. It is what
you use in a classroom, as it is effortful (even for Frenchmen), reasoned,
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slow, logical, serial, progressive, and self-aware (you can follow the steps
in your reasoning). It makes fewer mistakes than the experiential system,
and, since you know how you derived your result, you can retrace your
steps and correct them in an adaptive manner.
Most of our mistakes in reasoning come from using System 1 when we
are in fact thinking that we are using System 2 . How? Since we react without
thinking and introspection, the main property of System 1 is our lack
of awareness of using it!
Recall the round-trip error, our tendency to confuse "no evidence of
Black Swans" with "evidence of no Black Swans"; it shows System 1 at
work. You have to make an effort (System 2) to override your first reaction.
Clearly Mother Nature makes you usé the fast System 1 to get out of
trouble, so that you do not sit down and cogitate whether there is truly a
tiger attacking you or if it is an optical illusion. You run immediately, before
you become "conscious" of the presence of the tiger.
Emotions are assumed to be the weapon System 1 uses to direct us and
force us to act quickly. It mediates risk avoidance far more effectively than
our cognitive system. Indeed, neurobiologists who have studied the emotional
system show how it often reacts to the presence of danger long before
we are consciously aware of it—we experience fear and start reacting
a few milliseconds before we realize that we are facing a snake.
Much of the trouble with human nature resides in our inability to use
much of System 2, or to use it in a prolonged way without having to take
a long beach vacation. In addition, we often just forget to use it.
Beware the Brain
Note that neurobiologists make, roughly, a similar distinction to that between
System 1 and System 2, except that they operate along anatomical
lines. Their distinction differentiates between parts of the brain, the cortical
part, which we are supposed to use for thinking, and which distinguishes
us from other animals, and the fast-reacting limbic brain, which is
the center of emotions, and which we share with other mammals.
As a skeptical empiricist, I do not want to be the turkey, so I do not
want to focus solely on specific organs in the brain, since we do not observe
brain functions very well. Some people try to identify what are called
the neural correlates of, say, decision making, or more aggressively the
neural "substrates" of, say, memory. The brain might be more complicated
machinery than we think; its anatomy has fooled us repeatedly in
THE NARRATIVE FALLACY 83
the past. We can, however, assess regularities by running precise and thorough
experiments on how people react under certain conditions, and keep
a tally of what we see.
For an example that justifies skepticism about unconditional reliance
on neurobiology, and vindicates the ideas of the empirical school of medicine
to which Sextus belonged, let's consider the intelligence of birds. I
kept reading in various texts that the cortex is where animals do their
"thinking," and that the creatures with the largest cortex have the highest
intelligence—we humans have the largest cortex, followed by bank executives,
dolphins, and our cousins the apes. Well, it turns out that some
birds, such as parrots, have a high level of intelligence, equivalent to that
of dolphins, but that the intelligence of birds correlates with the size of another
part of the brain, called the hyperstriatum. So neurobiology with its
attribute of "hard science" can sometimes (though not always) fool you
