When we make decisions we think we're in control, making rational choices. But are we? This is the central question posed by Dan Ariely, Professor of Behavioral Economics at Duke University, in his book Predictably Irrational. Ken and John discuss irrationality, its dangers, and perhaps also its benefits, with this philosophical and fascinating economist.
What is it
People who predict the future well are sometimes said to be psychic. But we all make predictions about the future, with more or less success. We confidently predict the sun will rise tomorrow, that ice will be cold, etc. But maybe we're not quite as good at predicting the future as we think. Is the stock market predictable? The weather? Political upheavals? Or is life just too random to make good predictions? John and Ken predict that Nassim Taleb, author of The Black Swan: The Impact of the Highly Improbable, will join them to consider the extent to which we can forecast the future.
We constantly form expectations about the future—are we justified? Stock brokers, climatologists, demographers, school boards, attempt to predict the future. To what extent can we trust their predictions? If the future is less predictable than we imagine how do we plan for it? These questions motivate John and Ken’s discussion with guest Nassim Taled.
John and Ken frame the discussion in terms of Hume’s Problem of Induction. Hume argued that belief that the future will be like the past is grounded neither in experience nor reason, expressing skepticism at our ability to predict the future. Guest Nassim Taleb offers a slightly more complex view of the uncertainty of the future. His thesis centers on the occurrence of Black Swans, or events that are highly improbable based on logical information and statistics, but are of great consequence and retrospectively predictable. World War I, the internet, Harry Potter, and the stock market crash are all examples of Black Swans. Taleb does not believe in statistics, though he holds advanced degrees in applied statistics and mathematics and worked as a stock trader for over a decade. He argues that statistics are tools designed to fool us into thinking we know more than we do about the world. Taleb’s interest lies in the psychology of our errors in statistics, or what he calls anti-statistics and decision science.
Taleb’s theory describes two different domains, “Mediocristan” and “Extremistan,” in which our ability to predict the future differs. In “Mediocristan,” exceptions are not consequential. For example, when the height of an exceptionally tall person is averaged into the heights of one million people, it has little impact on the average height. In “Extremistan,” improbable events are highly influential, for example in the stock market. Social and economic variables prevail in “Extremistan” while biological and physical quantities lie in the province of “Mediocristan.” According to Taleb, the difference between these two domains explains why we can predict some things but not others.
The show closes with a discussion of the practicality of living in an “Extremistan” world. Taleb says that the world is becoming less and less predictable as time progresses and the link between action and consequence is becoming less clear. Ken asks why social life makes us live more in “Extremistan”? Returning to Hume, Taleb says humans are naturally good at generalizing in some areas and not others, arguing we are hard-wired for induction, or prediction of the future, in some domains and not others.
- Roving Philosophical Reporter (Seek to 5:30): Reporter Zoe Corneli speaks with Alexander Rose of the Long Now Foundation about his project to build a millennium clock, a clock that will run for ten thousand years. Rose seeks to change how people think about the future and shift our focus to long term problems by creating a device designed to last beyond our lifetimes.
- 60-Second Philosopher (Seek to 49:51): Ian Sholes recounts the story of Nostradamus, the 16th Century French seer who is credited with predicting many future events, including the French Revolution, atom bomb, the death of Princess Diana, and 9/11.