“Fooled by Randomness” a book by Nassim Nicholas Taleb talks about how we suffer from Randomitis… a disease that inclines us to underestimate the role of chance in life. As we go about our daily lives we sometimes don’t comprehend the import of randomness. It is my contention that leaders of men have to rise above these drawbacks.
“While leaders cannot control randomness it is their destiny to battle it.”
Underestimating the chance of a Black Swan – Rare events have way of sneaking up on us. As time trudges along the rare events that caused turmoil are reduced to pages and movies. Leaders cannot afford to underestimate the chances of wars or depressions, for as the period of calm continues the chance of disruption only increases.
Rationalization – the process of constructing a logical justification for a belief, decision, action that was originally arrived at through a different mental process. – It is common and almost prescribed to rationalize the mistakes of our past. It allows people to be happier than a blunt face-off with reality would lead allow.
The past is a museum of randomness. The museum will keep getting newer additions with time…to rationalize the past is to cover these pieces with a curtain that is easier on the eye.
Cross-sectional problem: In every period of history randomness interacts with leaders to define successful ones and failures. Like in the period of intense war (330 BC) the more impetuous and aggressive will be chronicled as heroes (Alexander the great), While the same overarching ambition will classify you as a villain in another time frame. In other words randomness can shape winners.
Now a leader embarking on a quest to study the winners in the 19th century will be rewarded with a set of characteristics that will allow him to succeed if randomness behaves the same as it did when these leaders became successful.
Survivorship bias – study of only survivors who have benefited from randomness will yield randomness dependant results. There is no work around but a healthy awareness is important.
Problem of stationarity: When we use statistics and other sophisticated mechanisms to analyze past time –series data and forecast the future, it is commonplace to assume the analysis to be tamper-proof. Consider that you have been pulling a ball a day from a large bag (whose contents are unknown to you) for a year. Time series data indicates that you have been getting red- balls on half the days and black on the other half. Now does this mean that you can never get a green or a blue ball?
The past is a museum of randomness…And it is by no means filled completely.
To complicate matters further evolution has designed us to be fooled by randomness. Some of the common short-cuts employed by the brain are satisficing (approximate optimization), Anchoring (being influenced by an external anchor), Bounded rationality (the brain is not designed to understand the dynamic of non-linearity) etc.
We are probably best evolved to survive in a simpler environment. Will evolution make us more advanced to offset these biases and cure us of randomitis?