I recently re-read Dan Kahneman‘s Thinking, Fast and Slow, and was amazed by how much that I noted in his narrative, this time, that I had either missed or misunderstood during previous readings. In Chapter 20, “The Illusion of Validity,” he notes that “the illusions of validity and skill are supported by a powerful professional culture.” Many of those who comprise that culture are the modern day equivalent of the courtiers who, serving their own self-interests, reassured the emperor how splendid he looked in his new clothes when in fact he was naked. Others have become hostage to what Jim O’Toole characterizes as “the ideology of comfort and the tyranny of custom.”
Consider this passage: “We know that people can maintain an unshakable faith in any proposition, however absurd, when they are sustained by a community of like-minded believers. Given the professional culture of the financial community, it is not surprising that large numbers of individuals in that world believe themselves to be among the chosen few who can do what they believe others cannot.” As Nassim Taleb points out in The Black Swan, our tendency to construct and believe coherent narratives of the past makes it difficult for us to accept the limits of our forecasting ability. “Everything makes sense in hindsight…And we cannot suppress the powerful intuition that what makes sense in hindsight today was predictable yesterday. The illusion that we understand the past fosters overconfidence in our ability to predict the future.”
Kahneman cites Philip Tetlock and his breakthrough research on so-called “expert opinions” and those who offer them in fields that include politics and economics. According to Tetlock, Kahneman notes, “those with the most knowledge are often less reliable. The reason is that the person who acquires more knowledge develops an enhanced illusion of her skill and becomes unrealistically overconfident.” According to Tetlock, “We reach the point of diminishing marginal predictive returns for knowledge disconcertingly quickly.”
What does Kahneman make of all this? “The first lesson is that errors of prediction are inevitable because the world is unpredictable. The second is that highly subjective confidence is not to be trusted as an indicator of accuracy (low confidence could be more informative).”
In this context, I am again reminded of Voltaire’s suggestion: “Cherish those who seek the truth but beware of those who find it.”
This brief commentary of mine cannot possibly do full justice to the substance of Kahneman’s insights. I urge you to read Thinking, Fast and Slow as soon as you can. The value of the material doubles each time you re-read it.
Daniel Kahneman is Eugene Higgins Professor of Psychology Emeritus at Princeton University and Professor of Psychology and Public Affairs Emeritus at Princeton’s Woodrow Wilson School of Public and International Affairs. He received the 2002 Nobel Prize in Economic Services for his pioneering work with Amos Tversky on decision making.