In 1943, the chairman of IBM, Thomas Watson, declared that, “there is a world market for maybe five computers.” In 1962, Decca recording company said of the Beatles, “we don’t like their sound, and guitar music is on the way out.” And in 1974, Margaret Thatcher proclaimed that, “it will be years — not in my time — before a woman will become Prime Minister.”
Why are we so bad with the future?
Whenever we speculate about future events we are bound by two things, our rationality in the present and our memory of the past. The problem is that 1) cognitive biases and heuristics contort our rationality and 2) our memory is highly unreliable being subjected to its own set of prejudices (there are mountains of psychological studies that explore these two points. The specifics aren’t important here).
Philosophers knew about this all along even though they didn’t have the empirical data. They called our inability to have knowledge of the future the problem of induction. For example, if I asked you how you know the Sun will rise tomorrow you will likely tell me that you know from experience; you’ve seen it rise every single day of your life so you induce from the past that it will do so again. The worry is that relying on past events do not guarantee knowledge of future events (e.g., just because the sun has risen every day doesn’t mean it will tomorrow). Philosopher David Hume summarizes:
The supposition that the future resembles the past, is not founded on arguments of any kind, but is derived entirely from habit.
Here’s another more dramatic and realistic example. Pretend you’re a Turkey. Up until Thanksgiving time you would have no reason to believe that you and all your friends would be axed. Then, one day, out of no where, it’s Turkey genocide.
Past experience couldn’t have predicted what was about to happen, and this turned out to be hugely problematic for you, the Turkey. This problem, what some call the Black Swan Theory, is everywhere: the internet, World War One, Harry Potter, the rise of global religions. What binds these phenomena are their unpredictability and high impact on society – nobody saw them coming and they ended up changing the world.
There are three elements of the black swan events
- They are very difficult to predict.
- They have a high impact on society
- After the event people have the tendency to rationalize them giving the illusion that they were expected
The fact of the matter is that we don’t know why black swans happened and we don’t know what and when the next one will be. That is the nature of black swans: before they occur they are extremely unpredictable but after they occur we explain them as if we saw them coming. They are prospectively unpredictable but retrospectively predictable, as Nassim Taleb says.
The frustrating aspect of Black Swan Theory is that it provokes people to ask when the next black swan will be. This completely misses the point. Asking when the next black swan is or whether or not it is possible to avoid black swans tells me that you don’t understand Black Swan Theory. By definition black swans can’t be predicted or avoided. Yet, people continue to believe that both are possible.
I think it goes back to the narrative fallacy, which is what the third bullet point highlighted. As Taleb explains, the narrative fallacy describes our “limited ability to look at sequences of facts without weaving an explanation into them, or, equivalently, forcing a logical link, and arrow of relationship, upon them.” I italicize “limited ability” to suggest that the narrative fallacy is unavoidable. We simply cannot assess the past without creating a narrative that fits with the present and projects the future. For better or for worse, this means we will continue believe that past experience guarantees knowledge of the future. It’s a strange paradox: we will always believe that we have a grip on the future even when we are repeatedly surprised by what it brings us.