Here is another observation from Nassim Taleb’s Incerto series, this time from his first book, Fooled by Randomness. The main message of that first book, as the title suggests, is that we humans (and he includes himself) often misinterpret purely random results. Here is an example.
There are thousands of CEOs and thousands of fund managers in the world. If they all made decisions at random, simple chance alone would dictate that a few would be right most of the time, and rise to the top on the basis of their impressive results. And human nature being what it is, most of these random “winners” will attribute their random success to something they had or did, because they were smarter or because they had a better strategy. This is called “survivorship bias”.
One might think this would be obvious to most people, but a quick search of Amazon will reveal a mass of books written by “successful” CEOs and fund managers and investment managers and the like, “explaining” how their systems led to their success. And lots of people apparently buy these books and attend their expensive seminars, hoping to learn their “secrets of success”. It may even be that a few of them actually do owe their success to being smarter or having a better system (or engaging in insider trading), but most are successful due to simple chance. Since most are where they are by simple luck, their “advice” is probably worthless, though it certainly helps their book sales.
Much the same message comes from Michael J. Sandler’s book The Tyranny of Merit, which I recommended a few months ago. The elites of the world think they are the elites because of something about themselves – that they work harder or are smarter or better educated or come from better blood lines – when in fact they are where they are mostly by pure luck, by having the luck to be born in the right place to the right family with the right connections in the right time with the right genes, and by having the good luck not to have screwed it all up somewhere along the way.
This applies to history too. As the saying goes, "History is written by the winners". And of course the winners always think they won due to their superior strategy, when in fact in many (most?) cases, they won primarily through luck. For example, the great victory at Midway in World War II hinged on the fact that an American scout plane was lucky enough to spot the Japanese fleet though the clouds before the Japanese located the American fleet. Of course history also suffers from the "narrative flaw", which we will discuss in a future posting.
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