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Daniel Kahneman once said, “Human beings cannot comprehend very large or very small numbers. It would be useful for us to acknowledge that fact.”
Physicist Freeman Dyson once explained that what’s often attributed to the supernatural, or magic, or miracles, is actually just basic math. In any normal person’s life, miracles should occur at the rate of roughly one per month: The proof of the law is simple. During the time that we are awake and actively engaged in living our lives, roughly for eight hours each day, we see and hear things happening at a rate of one per second. So the total number of events that happen to us is about 30,000 per day, or about a million per month. If the chance of a “miracle” is one in a million, we should
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The idea that incredible things happen because of boring statistics is important, because it’s true for terrible things too.
What’s different now is the size of the global economy, which increases the sample size of potential crazy things that might happen. When eight billion people interact, the odds of a fraudster, a genius, a terrorist, an idiot, a savant, a jerk, or a visionary moving the needle in a significant way on any given day is nearly guaranteed.
The decline of local news has all kinds of implications. One that doesn’t get much attention is that the wider the news becomes the more likely it is to be pessimistic. Two things make that so: • Bad news gets more attention than good news because pessimism is seductive and feels more urgent than optimism. • The odds of a bad news story—a fraud, a corruption, a disaster—occurring in your local town at any given moment is low. When you expand your attention nationally, the odds increase. When they expand globally, the odds of something terrible happening in any given moment are 100 percent. To
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Compare this to the past. Here’s Frederick Lewis Allen again, writing about life in 1900: The majority of Americans were less likely than their descendants to be dogged by that frightening sense of insecurity which comes from being jostled by forces—economic, political, international—beyond one’s personal ken. Their horizons were close to them. Their horizons were close to them. In modern times our horizons cover every nation, culture, political regime, and economy in the world. There are so many good things that come from that.
People don’t want accuracy. They want certainty.
Charlie Munger gave a talk in the 1990s called “The Psychology of Human Misjudgment.” He listed twenty-five biases that lead to bad decisions. One is the “Doubt-Avoidance Tendency,” which he described: The brain of man is programmed with a tendency to quickly remove doubt by reaching some decision. It is easy to see how evolution would make animals, over the eons, drift toward such quick elimination of doubt. After all, the one thing that is surely counterproductive for a prey animal that is threatened by a predator is to take a long time in deciding what to do.
Given that track record, will people ever choose to ignore the experts? “No way,” Tetlock once said. “We need to believe we live in a predictable, controllable world, so we turn to authoritative-sounding people who promise to satisfy that need.”
It often takes too long for a sufficient sample size to play out. So everyone is left guessing.
Distinguishing between unfortunate odds and recklessness is hard when risk has painful consequences. It’s easier to see black and white even when the odds are apparent.
What you always want to avoid are catastrophic risks. A pilot who crashes once every ten thousand flights is a catastrophe. But our difficulty dealing with probability and large numbers makes us overly sensitive to run-of-the-mill, inevitable risks. Same as ever.
Stories are always more powerful than statistics.
The best story wins. Not the best idea, or the right idea, or the most rational idea. Just whoever tells a story that catches people’s attention and gets them to nod their heads is the one who tends to be rewarded. Great ideas explained poorly can go nowhere, while old or wrong ideas told compellingly can ignite a revolution.
If you have the right answer, you may or may not get ahead. If you have the wrong answer but you’re a good storyteller, you’ll probably get ahead (for a while). If you have the right answer and you’re a good storyteller, you’ll almost certainly get ahead. That’s always been true, always will be true, and it shows up in so many areas of history.
Good stories tend to do that. They have extraordinary ability to inspire and evoke positive emotions, bringing insight and attention to topics that people tend to ignore when they’ve previously been presented with nothing but facts.
Even within a good story, a powerful phrase or sentence can do most of the work. There is a saying that people don’t remember books; they remember sentences.
Readers don’t want a lecture; they want a memorable story.
Or take the stock market. The valuation of every company is simply a number from today multiplied by a story about tomorrow.
Mark Twain said, “Humor is a way to show you’re smart without bragging.”
When a topic is complex, stories are like leverage.
Leverage squeezes the full potential out of something with less effort. Stories leverage ideas in the same way that debt leverages assets.
Ken Burns once said, “The common stories are one plus one equals two. We get it, they make sense. But the good stories are about one plus one equals three.” That’s leverage.
The most persuasive stories are about what you want to believe is true, or are an extension of what you’ve experienced firsthand.
Stories get diverse people to focus attention on a single point.
Steven Spielberg noted this: The most amazing thing for me is that every single person who sees a movie . . . brings a whole set of unique experiences. Now, through careful manipulation and good storytelling, you can get everybody to clap at the same time, to laugh at the same time, and to be afraid at the same time.
Guiding people’s attention to a single point is one of the most powerful life skills.
Good stories create so much hidden opportunity among things you assume can’t be improved.
How many great ideas have already been discovered but could grow one hundred times or more if someone explained them better? How many products have found only a fraction of their potential market because the companies that made ...
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Visa founder Dee Hock once said, “New ways of looking at things create much greater innovation t...
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Some of the most important questions to ask yourself are: Who has the right answer, but I ignore because they’re inarticulate? And what do I believe is true but is actually just good marketing?
The world is driven by forces that cannot be measured.
Attempting to distill emotional and hormonal humans into a math equation is the cause of so much frustration and surprise in the world.
But the strategy that worked at Ford had a flaw when applied at the Department of Defense. Edward Lansdale, head of special operations at the Pentagon, once looked at McNamara’s numbers. He said something was missing. “What?” McNamara asked. “The feelings of the Vietnamese people,” Lansdale replied. You couldn’t reduce that to a statistic or a chart. This was a central issue with managing the Vietnam War. The difference between battle statistics brought to Washington and the feelings among those involved could be a million miles apart.
Jeff Bezos once said, “The thing I have noticed is when the anecdotes and the data disagree, the anecdotes are usually right. There’s something wrong with the way you are measuring it.”
An aide to Bradley mentioned during the war: “If we were fighting reasonable people they would have surrendered long ago.” But they weren’t, and it—the one thing that was hard to measure with logic—mattered more than anything.
Athletic performance isn’t just what you’re physically capable of. It’s what you’re capable of within the context of what your brain is willing to endure for the risk and reward in a given moment. Your brain’s first job is to make sure you don’t die. So like a speed governor on a car, it won’t let you exert true maximum performance—which could leave you exhausted to the point of being vulnerable—unless the stakes are high enough. It will shut you down at a lower physical “limit” if the risk of exertion isn’t worth the reward.
This helps explain crazy stories about people lifting up cars when someone is pinned underneath, their life in jeopardy. Capabilities are a function of in-the-moment circumstances.
“there is more in athletics than sheer chemistry.” There was a behavioral and psychological side that was much harder to measure. You never know how an athlete can perform until you put them in the heat of the moment, with the pressures, risks, and incentives of real-world conditions that can’t be emulated in the laboratory.
Hill discovered the same, but for our bodies. He called them “moral factors.” Our bodies are not machines, and we shouldn’t expect them to perform as such. They have feelings, emotions, and fears, all of which regulate what we’re capable of. All of which are very hard to measure.
Investor Jim Grant once said: To suppose that the value of a common stock is determined purely by a corporation’s earnings discounted by the relevant interest rates and adjusted for the marginal tax rate is to forget that people have burned witches, gone to war on a whim, risen to the defense of Joseph Stalin and believed Orson Welles when he told them over the radio that the Martians had landed.
Every investment price, every market valuation, is just a number from today multiplied by a story about tomorrow. The numbers are easy to measure, easy to track, easy to formulate. It’s getting easier as almost everyone has cheap access to information. But the stories are often bizarre reflections of people’s hopes, dreams, fears, insecurities, and tribal affiliations. And they’re getting more bizarre as social media amplifies the most emotionally appealing views.
Same thing here: The most important variable was the stories people told themselves. And that was the only thing you couldn’t measure and couldn’t predict with foresight. That’s why the results don’t compute.
Economist Per Bylund once noted: “The concept of economic value is easy: whatever someone wants has value, regardless of the reason (if any).” Not utility, not profits—just whether people want it or not, for any reason. So much of what happens in the economy is rooted in emotions, which can, at times, be nearly impossible to make sense of.
The ones who thrive long term are those who understand the real world is a never-ending chain of absurdity, confusion, messy relationships, and imperfect people.
The first step toward accepting that some things don’t compute is realizing that the reason we have innovation and advancement is because we are fortunate to have people in this world whose minds work differently from ours.
Author Robert Greene once wrote, “The need for certainty is the greatest disease the mind faces.”
The next is accepting that what’s rational to one person can be crazy to another. Everything would compute if everyone had the same time horizon, goals, ambitions, and risk tolerances. But they don’t.
Third is understanding the power of incentives. A financial bubble might seem irrational, but the people who work in industries that are in bubbles—mortgage brokers in 2004 or stockbrokers in 1999—make so much money from them that there’s a powerful incentive to keep the music playing. They delude not only their customers but themselves.
Last is the power of stories over statistics. “Housing prices in relation to median incomes are now above their historic average and typically mean revert” is a statistic. “Jim just made $500,000 flipping homes and can now retire early and his wife thinks he’s amazing” is a story. And it’s way more persuasive in the moment. It’s hard to compute, but it’s how the world works.
