Inherent Uncertainty

My darling bride and I are walking for an hour a day during Lent. As it turns out, that commitment became much easier to uphold than I had expected. On one of those recent walks, we happened by a local house of worship, the site of the Poway synagogue shooting almost a year ago, about half-a-mile from our house.

We stopped to look at the small memorial there, a grim reminder, as if COVID-19 weren’t enough of one, that the rain falls on the just and unjust, as Jesus said. Usually we think that means life happens, bringing everyone burdens and blessings. Today, however, everyone is getting wet, even if some are much wetter than others.

It is also a reminder that bad, even dreadful outcomes needn’t be earned: “Life is on the wire. The rest is just waiting.”

Surprising things happen all the time. As Mississippi State football coach Mike Leach said about upsets in the college game, “Everybody’s all surprised every time this stuff happens. It surprises me everybody gets surprised, because it happens every year like this that there are surprises. The most surprising thing would be if there weren’t any surprises. So therefore, in the final analysis, none of it’s really that surprising.”

We think and live as if we are essentially in control of our lives. That’s less true than we care to concede. That’s why people in our business are required to emphasize that past performance is not indicative of future results.

Past isn’t prologue.

We are self-serving creatures to the core, and self-serving bias is our ongoing tendency to attribute our successes to skill and our failures to very bad luck. But the stark reality is that luck (and, if you have a spiritual bent, grace) plays an enormous role in our lives – both good and bad – just as luck plays an enormous role in many specific endeavors, from investing to poker to winning a Nobel Prize. If we’re honest, we’ll recognize that many of the best things in our lives required absolutely nothing of us and what we count as our greatest achievements usually required great effort, skill, and even more luck.

In Born to Win, Schooled to Lose, Georgetown University researchers found that being born “affluent” but dim carries a 7 in 10 chance of reaching a high socioeconomic status as an adult, while being born intelligent but “disadvantaged” means just a 3-in-10 shot. Talent is universal; opportunity is not. Bill Gates would not have become the Bill Gates we know had he been born into poverty in Pakistan. As Nick Heil explained, “you never really know how lucky you are until your luck runs out.”

Our industry and skill often matter, of course, and often a great deal. Because our lives are much more random and contingent than we recognize, luck is often intertwined with industry and skill.

Sometimes our luck is good, as when the San Antonio Spurs opened a game by making 14 straight three-point shots. Sometimes our luck is bad, as when the Houston Rockets missed 27 straight three-pointers with a trip to the NBA Finals on the line. Sometimes it’s both at the same time.

There are varying degrees of fault and stupidity throughout the COVID-19 transmission chain. Rudy Gobert of the Utah Jazz mocked COVID-19 procautions

…and then came down with the virus and infected at least one teammate. But, ultimately, COVID-19’s appearance and any singular infection are essentially random consequences, what Christian theologians call “natural evil,” a “simple twist of fate.”

Nobody created or weaponized the coronavirus. It just happened.

Our lives are incessantly messy. We condense and simplify these messy lives into narratives, which flatten us while making our lives seem less contingent and more coherent than they really are.

Whatever our preferred narratives, real life is non-linear and random, often wildly so. Surprising things happen all the time – unexpected, off-brand, and off-message. The world is so big and so complex that there are enough once-in-a-century, huge, bad events that they seem to happen at least once a decade.

Many of these big events are entirely or, at least, essentially out of our control. That’s a problem all the data in the world won’t fix. The global coronavirus pandemic is one such huge, once-in-a-century type, essentially random event. It has not so much altered our lives as stopped them in their tracks – at an utterly random point. We’re barely leaving our homes.

A one combat veteran explained, “You realize there’s no rhyme or reason to why some guy gets hurt and another doesn’t, some guy lives and another doesn’t . . . There are enough gun fights and enough things blowing up and people are going to get hurt. That’s just how it goes.”

As we’re learning – more each day – randomness can have a dark edge, even when we are spared.

Those of us who have been involved in the markets for a long time (or at least a couple months) will recognize that, as Keynes is purported to have said, the markets can remain irrational longer than we can remain solvent. Tom Stoppard, in his play, The Hard Problem, explains why: “In theory, the market is a stream of rational acts by self-interested people; so risk ought to be computable. But every now and then, the market’s behavior becomes irrational, as though it’s gone mad, or fallen in love. It doesn’t compute. It’s only computers compute.”

It doesn’t compute, of course, because markets are made, controlled, and driven by people, who may be self-interested, but who aren’t always or necessarily rationally self-interested. They are merely people, not meat machines. They are yearning, hurting, illogical, and infuriating — driven by the attraction Newton left out and by the devout hope that the better angels of our nature that Lincoln saw are real.

All in all, we’re both more predictable and less logical than we’d like to think. We want binary questions and answers in a world far messier and more complicated than that.

When something unexpected happens and markets go down – as often happens – commentators often remark that “uncertainty” caused that price action. The problem is, such uncertainty never leaves. We only have, sometimes, the illusion of certainty.

During a crisis such as this, it’s much easier than usual to recognize that our lives are inherently uncertain. That means we should try to prepare for uncertainty as best we can. Redundancies (like an emergency fund) matter more than efficiency in crisis.

It also means we should take greater care to consider who and what we can depend on. Lots of us have discovered or rediscovered that our lives, our livelihoods, our wealth, our comforts, and our relationships are more fragile and contingent than we thought. If each of us were truly more aware of the importance of luck to our successes, we’d be humbler and kinder (there is already some evidence of this).

The best means for dealing with inherent uncertainty is simple: humility and kindness. It’s simple, but very hard to execute. You may need some luck (or grace) to do it.

What Do Market Recoveries Look Like?

Since 1871, market downturns have recovered as follows:

  • 33 percent of market downturns recover within a month;
  • 50 percent of market downturns recover within two months;
  • 80 percent of market downturns recover within one year; and
  • 95 percent of the time those big “once or twice in a lifetime drops” return to even in three to four years.

Collectively, the average time it takes for the market to recover (top to trough to top again) is 7.9 months.

Punched in the Face

When I was a ninth-grader, my high school showed Alfred Hitchcock’s classic horror film, Psycho, in the school auditorium on a snowy Friday night. I desperately wanted to be and look cool, but when Martin Balsam’s Detective Arbogast climbed the stairs in the old house behind Bates Motel to meet Mother, I dove under my seat in terror. I didn’t climb stairs in the dark without shuddering for years. Warning: The clip below is violent and still scary.

Investors have to face fear every day, more so on some days than others. To quote Jason Zweig paraphrasing Mike Tyson, “investors always have a plan until the market punches them in the face.”

Every investor got punched in the face during the first quarter. Over and over.

Domestic stocks suffered their worst quarterly decline since the height of the Great Financial Crisis 11 years ago. Foreign markets got whacked, too.

What’s an investor to do?

The obvious temptation is to sell, and maybe hide, but betting against the market is a dangerous business. Jim Chanos is probably the best short-seller in the world, which means he profits when stocks he is short go down in value. But it’s extremely hard to make money that way. You win in bad times, but stocks generally go up, and shorts lose money. Chanos’s short book has lost 0.7 percent annually over the long-term.

The best short-seller in the world can’t consistently pick money-losing stocks.

Chanos’s flagship fund (Kynikos Capital Partners, minimum investment $1,000,000), via leverage, is 190 percent long and 90 percent short. The general upward market trend is his friend. Unlike most long/short hedge funds, the longs are primarily passive, with the intellectual effort going into the shorts. Since its inception in 1996, the Kynikos Capital Partners fund had a net annualized gain of 26.9 percent as of the end of September 2019 — more than double the S&P 500.

If you were simply to borrow money and buy stocks with 190 percent of your money, and you chose stocks randomly, you should get about 190 percent of the performance of the market, less your financing costs. That means that you would get nearly double the performance of the S&P, but also almost twice the volatility. And when markets crash, you will lose a lot of money. If you were long 190 percent and short 90 percent, and you chose stocks randomly, the holdings would largely cancel out each other, and you would earn roughly the performance of the S&P, less financing costs. However, if you get 190 percent long randomly and short 90 percent very intelligently (you “only” lose 0.7 percent per year at it), you can earn roughly double the performance of the S&P without extra volatility. And when markets crash, you can still make money.

This approach provides a textbook lesson in the benefits of diversification and uncorrelated returns, of course. But it also illustrates how hard it is to bet against stocks by shorting or sitting on the sideline.

Peter Lynch famously said that more money has been lost trying to avoid bad markets than in the bad markets themselves. After 9.11, that idea was tested in a different context. Post-9.11 fear kept lots of people off airplanes. However, if a 9.11 impact attack had happened every single day for a year, the odds that you’d be killed by such an attack would be one in 7,750, still greater that the actual odds of dying in a traffic accident. Gerd Gigerenzer estimates that the increase in automobile travel in the year after 9.11 resulted in 1,595 more traffic fatalities than would have otherwise occurred.

We humans don’t handle the stress well. As Laurence Gonzales explained in Deep Survival, “it’s easy to demonstrate that many people (estimates run as high as 90 percent), when put under stress, are unable to think clearly or solve simple problems. They get rattled. They panic. They freeze.”

Our quite natural reaction to market volatility, to fear, is to bail. Trying to time the market in that way comes with a crazy-high degree of difficulty. Market-timing successfully means making many immensely difficult and complicated decisions and being consistently right. There is no reason to expect anyone to be able consistently to navigate difficult markets without losses.

On the other hand, staying in the market has significant advantages. University of Michigan Professor H. Nejat Seyhun analyzed over three decades of data and concluded that an average of just three days per year generated 95 percent of all the market gains. Long-term returns accrue in bunches, and, in the markets as in the lottery, you’ve got to be in it to win it (although the market offers an exponentially greater chance of success).

Moreover, the majority of the market’s best days occur within two weeks of the worst days (as we’ve seen recently), meaning that if you could somehow avoid the worst days, you would almost surely miss a lot of best days. Indeed, every S&P 500 decline of 15 percent or more, from 1928 through 2019, has been followed by a recovery such that the average return in the first year after each of these market declines was nearly 55 percent. It generally pays to stay invested. Trying to “go to cash” at opportune times and, equally importantly, buying back in at the right time, is a loser’s game.

Warren Buffett is more realistic: “We do not have, never have had, and never will have an opinion about where the stock market, interest rates, or business activity will be a year from now.” Market timing strategies are frequently triedrarelyif eversuccessfully. Academics find them sorely lacking. Market returns lead investor returns, whether the measurement is performed by Morningstar or Dalbar. Active management trails the market too.

When it comes to market-timing, smart money sees red flags waving. Many still insist that what they’re seeing is a parade.

A $100 investment in each of cash (3-month U.S. Treasury bills), bonds (10-year U.S. Treasury notes) and stocks (the S&P 500 and its predecessor) on January 1, 1928 would have returned $2,079.94, $8,012.89, and a whopping $502,417.21, respectively, through December 31, 2019. That difference of nearly half a million dollars on a $100 investment is not a typo. Stocks are worth their volatility, the necessary price you pay for the much higher expected returns of stocks as compared with other investment choices. Accordingly, the longer the time frame we use for reference, the more powerful stocks become.

That’s why truly long-term investors shouldn’t worry about market volatility, which raises what is likely the crucial question: Are you a long-term investor? Short-term investors and those whose life situation makes sequence risk a major concern should invest accordingly. Those who recognize that fear will get the better of them [Quick Check: How often did you check your portfolio last week? If your answer is something like, “A lot,” I may well be talking about you] might consider a portfolio mechanism like a pressure relief valve to try to help manage their fears. A decent portfolio that you can stick with is far better than a perfect portfolio you can’t.

Volatility can cause major deviations in the near-term. On a daily basis, the S&P 500 is positive barely 50 percent (53.7 percent) of the time. Moreover, annual returns for the S&P (1928-2019) have shown a wide variance, from -44 percent to +53 percent within a calendar year. Owning stocks is emotionally difficult. No pain, no gain. Not everyone is up to it.

However, rolling annualized returns over longer periods are increasingly positive, with lessening variance. For rolling 30-year periods, annualized S&P 500 returns have varied between 7.97 and 13.63 percent. Even the worst of those outcomes is pretty darn good. Most of us would happily bank eight percent returns for as long as they were offered.

To be clear, none of this is guaranteed. Just because something has always worked doesn’t mean it always will. The worst that has ever happened isn’t a limit on what can happen. Past performance is not indicative of future results. If you doubt me, ask Japanese investors how “stocks for the long run” has performed for them, or ask risk managers how VaR worked for them during the GFC. The perma-bears could (finally) be right today.

But that’s not the way any of us who are long-term investors should bet. Despite the current turmoil, the difficulties of which should not be underestimated, the probabilities still favor investment. By a lot. Our brains all echo with fearful thoughts, whispers, and imprecations. For most of us, most of the time, we’d do well to ignore them about our investment choices.

Wash Your Hands

No instruction has been more consistent throughout the coronavirus crisis than the insistence that we wash our hands. Pretty much all the time. A lot more thoroughly and for a lot longer than we’re used to. The reminders are insistent, too, and sometimes annoying.

But they are important. Therefore, it is appropriate that we recall the tragic story of the patron saint of hand-washing. He’s Ignaz Semmelweis, a 19th Century Hungarian obstetrician who found lasting scientific fame, but only posthumously. Continue reading

Crisis Market Diary: A Decade-Week

Snip20200321_11As the saying goes (often falsely attributed to Lenin), there are decades where nothing happens, and there are weeks where decades happen. We just lived through one of those decade-weeks. It “was a week of escalation. Of the coronavirus and the countermeasures. Of the economic hit and the policy response. Of investor fear and market stress. In the space of six days, warning lights flashed in the deepest recesses of global markets, a decade’s worth of monetary action, and a scramble for liquid assets surpassing any that went before.” Continue reading

Top Ten Behavioral Biases, Illustrated #10: Often Wrong But Never in Doubt (Bias Blindness)

“A person is smart. People are dumb, panicky, dangerous animals and you know it.”


We all suffer from the cognitive and behavioral biases I have been highlighting in this series. Lots more, too. We’re often “dumb, panicky, dangerous animals.” These biases threaten any hope we might have of objective analysis, especially about the things that are closest to us and in which we have the most invested.

We don’t perceive the world nearly as well as we think we do.

Most especially, we aren’t as self-aware as we think we are.

If we are aware at all, we will frequently recognize these behavioral and cognitive weaknesses in others – especially the most egregious examples. But we will almost never recognize them in ourselves. That’s because everybody else is expressing opinions while we are stating facts. Or so it seems.


That reality – that failing – is bias blindness, our inability or unwillingness, even if and when we see it in others, to see the biases that beset us. Bias is everywhere. So is bias blindness, no matter how willing – and even eager – we are to deny it. As Jesus said: “It’s easy to see a smudge on your neighbor’s face and be oblivious to the ugly sneer on your own.”

Bias blindness is the most significant bias of all.

As the Joker says, “Sometimes I remember it one way, sometimes another. If I’m going to have a past, I prefer it to be multiple choice.”

In the “Author’s Message” to his thriller, State of Fear, in which the hero scientist questions the global scientific consensus on climate change, the late Michael Crichton made the point that “politicized science is dangerous,” and then added, “Everybody has an agenda. Except me.”


From a large and representative sample, more than 85 percent of test respondents believed they were less biased than the average American. Another study of those who were sure of their better-than-average status found that they “insisted that their self-assessments were accurate and objective even after reading a description of how they could have been affected by the relevant bias.” On the other hand, participants reported their peers’ self-serving attributions regarding test performance to be biased while their own similarly self-serving attributions were free of that bias.


Ofttimes, we are just plain stupid or wildly wrong. Perhaps the best performing asset over the past 20 years is Monster Energy Drink, a product specifically designed and marketed for abject morons.

We are emotional more than rational. Our beliefs, preferences, and choices can and do change, often for poor reasons, and which choices often foreclose or limit later choices. Finally and crucially, these weaknesses are mostly opaque to us. They leave no cognitive trace.

We think that reality only applies to somebody else. We’re often wrong but never in doubt.

When Jane Curtin was asked if the person she was mimicking for a screen role knew that she was the source material, she replied, “I used to do my aunt when I was doing improv, and she always thought I was doing my other aunt.”

George Washington was well aware of his bias blindness, as reflected by his famous Farewell Address, yet another reason for his greatness.

“Though, in reviewing the incidents of my administration, I am unconscious of intentional error, I am nevertheless too sensible of my defects not to think it probable that I may have committed many errors. Whatever they may be, I fervently beseech the Almighty to avert or mitigate the evils to which they may tend. I shall also carry with me the hope that my country will never cease to view them with indulgence; and that, after forty-five years of my life dedicated to its service with an upright zeal, the faults of incompetent abilities will be consigned to oblivion, as myself must soon be to the mansions of rest.”

Check out Lin-Manuel Miranda’s brilliant musical version from Hamilton. It’s magic.

Warren Buffett put it really well. “What the human being is best at doing is interpreting all new information so that their prior conclusions remain intact.” And who better to illustrate it than Dr. Sheldon Cooper?

“Howard, you know me to be a very smart man.
Don’t you think if I were wrong, I’d know it?”

On our better days, we might grudgingly concede that we hold views that are wrong. The problem is in providing current examples.

A key theme in Shakespeare, for example, shows everyone thinking that they are smart enough to fool others, all the while being fools themselves.

Jane Austen, too, here in the guise of a modernization of Emma, wherein the heroine spends the entire movie trying to help others who don’t have a clue, oblivious to being “Clueless” herself.

That may explain why people on the freeway driving slower than I are dangerous idiots while people driving faster are…dangerous maniacs.

And why “everyone is stupid except me.”

Roughly to paraphrase the Swiss theologian Karl Barth, Hell is being apart from God. As C.S. Lewis wrote in The Great Divorce, “There are only two kinds of people in the end: those who say to God, ‘Thy will be done,’ and those to whom God says, in the end, ‘Thy will be done.’” In that way, Hell is having your own way and being stuck with it. If we don’t find ways at least to mitigate our mental weaknesses and shortcomings, we will be stuck in Hell. We will have our own way, sure, but we’ll continue to be stuck with it.

Our own way is inevitably human. Unfailingly and frustratingly human.

Naturally the dying man wonders to himself
Has commentary been more lucid than anybody else?
And had he successively beaten back the rising tide
Of idiots, dilettantes, and fools
On his watch while he was alive

And it occurs to him a little late in the game
We leave as clueless as we came
For the rented heavens to the shadows in the cave
We’ll all be wrong someday

Bias, like wisdom and wealth, compounds, making “our own way” particularly excruciating. We each have 525,600 minutes per year to get things right…

…or at least righter; or even better, less wrong. Overall, things are bad enough that, usually, not stupid wins.

Fixing a problem begins with understanding there is a problem. We humans can be remarkably yet wrongly sure of our own rightness and righteousness, no matter what others might think or what is going on around us. Note the following, terrifying example.

If nothing else, I hope this series of illustrations has caused you to consider that you might not be as aware, as great, or as unbiased as you tend to think. I trust it has provided at least a bit of illumination of the bias problems that so routinely beset all of us.

We’re often wrong, but never in doubt.

Top Ten Behavioral Biases, Illustrated #9: Fighting the Last War (Recency Bias)

By every objective measure, Joe Flacco is a decent, but not great, NFL quarterback. However, he parlayed one great playoff run into a Super Bowl championship and a huge contract. ESPN’s Merrill Hoge decided that one great run over a very small sample size that included a Super Bowl turned Joe Flacco into the best quarterback in the NFL.

That’s recency bias – our tendency to overweight and overemphasize what just happened over the broader body of evidence. Oh, and by the way, after that great run, Flacco went back to being okay but not great.

Its close cousin is the availability heuristic, whereby we tend to think that that which is most readily recalled provides the best context and basis for future decisions. Its why we’re generally far more afraid of sharks, responsible for six deaths per year worldwide, than mosquitos, which are responsible for 750,000 deaths per year.


In fact, as explained by Freeman Dyson, sharks actually save the lives of swimmers. On average, each swimmer killed by a shark saves the lives of ten others by keeping people out of the water: “Every time a swimmer is killed, the number of deaths by drowning goes down for a few years and then returns to the normal level. The effect occurs because reports of death by shark attack are remembered more vividly than reports of drownings.”

Per William James, “The attention which we lend to an experience is proportional to its vivid or interesting character; and it is a notorious fact that what interests us most vividly at the time is, other things equal, what we remember best.” Think name recognition in politics.

In the investment world, we’re especially susceptible to these biases.


It’s why we purchase defensive investment products and strategies right after the market crashes. We lock the barn door after the horse is gone.

As the famous proverb goes, that’s why we are so prone to “fight the last war.” An historical example is when France built the Maginot Line in the 1930s. It was a series of concrete fortifications constructed along the border with Germany; the French didn’t bother to fortify their border with Belgium. The Maginot Line would have been a great move in WWI (then the last war), where armies moved slowly and concrete fortifications were significant hindrances. However, it didn’t help in WWII, when Germany flanked the Maginot Line and invaded from the north, through Belgium.

We all tend to place too much emphasis on the recent and latch onto what’s immediate…like the girl next door.

We often lose sight of the longer-term because of our obsession with the vividly immediate. Lunch tomorrow is a long-range plan. We routinely do without “lasting treasure…”

…to fixate on “a moment’s pleasure” even though we know – unequivocally – that focusing on the long-term is the right thing to do, in our lives and in our businesses.

Top Ten Behavioral Biases, Illustrated #8: I Knew It All Along (Hindsight Bias)


Hindsight bias occurs when people feel that they “knew it all along,” that is, when they believe that an event is more predictable after it becomes known than it was before it became known.

It is closely related to outcome bias, whereby we evaluate a decision by the outcome it generates.

In 2009, with his team leading 34-28 late but backed up at their own 28-yard-line with two minutes left and needing two yards for a first down, New England Patriots’ coach Bill Belichick chose to go for it on fourth down to try and keep the ball out of opposing quarterback Peyton Manning’s hands. Although it was, statistically, the correct call, it didn’t work out.

Because it didn’t work out, Belichick received withering criticism. For example, Dan Shaughnessy of The Boston Globe called the decision “ghastly” and a “gaffe unrivaled.” NBC analyst Rodney Harrison, who had played for Belichick, called it “the worst coaching decision I’ve ever seen Bill Belichick make.” Jay Mariotti said the call was “inexplicably arrogant” and “football suicide.” On SportsCenter, Trent Dilfer called the decision “ludicrous” and “absolutely ridiculous.” Jim Litke of the AP referred to it as “a reckless gamble.”

On the other hand, had the decision turned up roses, it would surely have been hailed as brilliant and courageous. That’s outcome bias.

In one representative study, 77 percent of entrepreneurs in charge of failed start-ups believed – before the failure – that their company would grow into a successful business. After they failed, only 58 percent said they had originally believed their company would be a success.

Salena Zito made her name with sympathetic (perhaps too sympathetic) profiles of Trump voters that gained the president’s approval. In September of 2016, she famously observed that, when Trump says something obviously false, “the press takes him literally, but not seriously; his supporters take him seriously, but not literally.”

Zito also had a carefully constructed narrative to set herself apart: “When I cover politics, I don’t fly. I only take back roads. I stay in a bed and breakfast. That’s why I had a different take.”

After the election, Politico called Zito “a reporter who saw Trump’s victory coming from miles away.” Zito didn’t disagree. “Everybody, everybody thought I had lost my mind,” she said (emphasis in original). As she carefully explained: “I essentially said, ‘This race is over, nobody knows it yet.’”

She “knew it all along.” Except she didn’t.

Despite Zito’s subsequent claims (and higher profile jobs and book deal), she didn’t really predict a Trump victory beforehand. The alleged prediction was a July, 2016 column that said the election “might be different” and that Trump “can win” Pennsylvania and thus the election. She had been similarly optimistic about the McCain and Romney candidacies. Indeed, Zito devoted one of her last columns before the 2016 election to explaining why “[a] Trump defeat will be incredibly difficult for his supporters to accept.”

It was only afterward that she said she saw it coming “from right before the convention.”

She “got the feeling that this would go for Trump.”

A few people did get it right. They knew it all along.

Even when they didn’t.

Top Ten Behavioral Biases, Illustrated #7: Planning is Guessing (the Planning Fallacy)

Snip20200222_20It’s a weekend tradition of sorts. On Friday evenings when I’m home, I outline what chores I plan to get done around the house on Saturday and what I need to buy to complete them. Inevitably, however, it takes a lot longer to do my chores than I expect and I routinely need to make multiple visits to Home Depot for supplies because I’m missing something (or multiple somethings). And the results aren’t often great.

Nearly all of us overrate our own capacities and exaggerate our ability to shape the future [insert discussion of Friedrich Hayek’s warnings about the folly of planning here].


British Prime Minister Lord North, on dealing with the rebellious American colonies, in 1774 exclaimed that “Four or five frigates will do the business without any military force.” As he watched German troops heading off to fight in World War I in August of 1914, Germany’s Kaiser Wilhelm II was convinced that, “You will be home before the leaves have fallen from the trees.” Three days before Pearl Harbor, U.S. Secretary of the Navy, Frank Knox, offered his assurance that “No matter what happens, the U.S. Navy is not going to be caught napping.” In 1958, Soviet leader Nikita Khrushchev claimed that the U.S.S.R. would destroy western capitalism economically: “We will bury you.”

A wide swath of research shows that we tend to have unreasonably optimistic expectations about the future. That flaw, per Kahneman, is the planning fallacy, which is our tendency to underestimate the time, costs, and risks of future actions and at the same time to overestimate the benefits thereof. It’s at least partly why we underestimate bad results. It’s why we think it won’t take us as long to accomplish something as it does. It’s why projects tend to cost more than we expect. It’s why the results we achieve aren’t as good as we expect. It’s why we’re dead certain even when the actual results are guaranteed to be, as Ben Carlson explains, “more than never, less than always.”

The planning fallacy projects our fanciful and self-serving renderings forward with the idea that the future can somehow be managed — and perhaps controlled — despite the lack of any actual historical support for the notion. As Adam Gopnik sagely points out, “[w]hat history generally ‘teaches’ is how hard it is for anyone to control it, including the people who think they’re making it.” Indeed, “the best argument for reading history is not that it will show us the right thing to do in one case or the other, but rather that it will show us why even doing the right thing rarely works out.”

Kahneman’s conclusion is a depressing one indeed, especially when we carefully consider its implications. “Most of us view the world as more benign than it really is, our own attributes as more favorable than they truly are, and the goals we adopt as more achievable than they are likely to be.”

Study into the planning fallacy caused Oxford’s Bent Flyvbjerg to establish what he calls “the iron law of megaprojects” – they will be over budget, over time, under benefits, over and over again. But it does have some practical utility. As Kahneman notes, “If you realistically present to people what can be achieved in solving a problem, they will find that completely uninteresting. You can’t get anywhere without some degree of over-promising.” It’s much easier to get forgiveness than permission.

This overriding problem is why I take three trips to Home Depot on Saturdays and why it takes me all day to finish a household chore I expected to take maybe an hour (which then doesn’t look right or work right). As John Lennon explained, “Life is what happens to you while you’re busy making other plans.”

Things rarely turn out the way we expect. We never have everything covered. Life happens. The future remains uncontrolled. None of knows about tomorrow.

Planning is guessing.

Top Ten Behavioral Biases, Illustrated #6: The Map is Not the Territory (the Narrative Fallacy)

“We may be through with the past, but the past ain’t through with us.”

Why do men find younger women more desirable than older women? Evolutionary psychologists tell us that younger women are more likely to be fertile and healthy, and their progeny are thus more likely to arrive and survive. Accordingly, per this thinking, male preferences are driven by genetics, through the mechanism of evolution by natural selection during the Pleistocene era, to optimize the chances of their genes being preserved.

This claim has a certain plausible elegance to it. It may even be true, despite its consistency with common stereotypes. However, despite the scientific imprimatur with which it is offered, it is — nonetheless — a just-so story, without empirical evidence to support it. The interior lives of our progenitors left no fossil record. As Stephen Jay Gould recognized, linking the behavior of humans to their evolutionary past is fraught with peril, “not least because of the difficulty of disentangling culture and biology.”

On account of the narrative fallacy, we insist on plunging ahead anyway. Even scientists.


The narrative fallacy is our general inability to look at sequences of facts or events without weaving an explanation into and around them. Explanations bind facts together in our minds and memories. The fallacy part, as the semanticist Alfred Korzybski reminded us, is that “The map is not the territory.” Korzybski emphasized that symbols (“maps”) are not the things symbolized (the “territory”). “Those who rule the symbols, rule us.”


Ursula K. Le Guin’s opening line of her science fiction classic, The Left Hand of Darkness, is brilliant: “I’ll make my report as if I told a story, for I was taught as a child on my homeworld that Truth is a matter of the imagination.” Her “homeworld” is more like ours than we’d care to admit.

The story may be apocryphal, but Maria Konnikova describes the French poet Jacques Prévert improving a blind beggar’s signage and fortunes. In place of “Blind man without a pension,” Prévert flipped the sign over and wrote, “Spring is coming, but I won’t see it.”

Don Draper doesn’t close the deal with facts — he “plays a memory” (and the irony is all the richer because the story he tells is utterly fake).

With stories, we’re “easy to convince.”

We want to be entertained.

“Here we are now, entertain us.”

As his handler Fuches reminds contract killer Barry in the HBO series of the same name, the real-life William Wallace didn’t give that iconic speech we watched and remember in Braveheart. People, he said, “don’t want honest. They want entertainment.” As Fuches repeatedly insists, “I guess everyone’s a hero of their own story, right?” Series star Bill Hader notes, “They want to see the thing that they’re not.”

In this sense, we are all novelists, who always put the best “faces” on our behavior. Stories get in the way. We’re all pretenders.

Even Erasmus recognized that most Christians will learn nothing from a sermon but remember a story told by the preacher.

The artistic impulse, (in a bit of delicious irony, this idea is often falsely attributed to Mark Twain), is never to let the facts get in the way of a good story. Significantly, Lin-Manuel Miranda’s Hamilton is consistently wise to this problem in that the characters (and George Washington especially) are aware that who tells the story is crucial to how one is perceived and remembered.

Stories are a “land of make believe,” both literally and figuratively.

Released 20 years ago, Peter Weir’s brilliant film, The Truman Show, may be the work of art that best predicted the 21st century. It stars Jim Carrey as Truman Burbank, adopted and raised by a corporation inside and enclosed by a reality television show of his life, until he discovers the charade and decides to escape. A taut, dark, yet funny masterpiece whose prescience only deepens with time, Truman’s entire existence since the womb has been televised, and all the people in his life have been paid actors.

The show’s creator and director, Christof (Ed Harris), was a prophet when he proclaimed that, “We’re tired of actors giving us phony emotions … [The Truman Show] is not always Shakespeare, but it is real,” or as real as most Instagram accounts, anyway. When the film began showing in theatres, people doubted that anyone would watch Truman’s banal life. Today, few doubt that many would choose to be Truman.

As he discovers the truth about his existence, Truman fights to find an escape – through a door the looks like the sky – from those who have always controlled him and his simplified and utterly phony reality. Like Truman, we all struggle with the narratives we seem to have been given. We are all, as Devorah Goldman argues, balancing our roles as “creator and created, limited by circumstances and nature but bent on inventing ourselves and managing how we are perceived.” As Christof explained, “We accept the reality of the world with which we are presented. It’s as simple as that.”

The world to which Truman “escaped” 20 years ago was significantly different from today’s world. It isn’t altogether clear that if Truman escaped today he would see much difference between his prison and his new life.

We like to think that we are like judges, that we carefully gather and evaluate facts and data before coming to an objective and well-founded conclusion. Instead, we are much more like lawyers, grasping for any scrap of purported evidence we can exploit to support our preconceived notions and allegiances. Doing so is a common cognitive shortcut such that “truthiness” – “truth that comes from the gut” per Stephen Colbert (the video can’t be embedded; watch it here) – seems more useful than actual, verifiable fact. What really matters is that which “seems like truth – the truth we want to exist.” That’s because, as Colbert explained, “the facts can change, but my opinion will never change, no matter what the facts are.”

Reality is messy. Stories? Not so much. Stories can never be truly ordinary or they wouldn’t resonate. There needs to be narrative arc or we won’t stick around. Our lives are ordinary and we want to experience the extraordinary, to imagine being extraordinary. If characters in a story are too real, it wouldn’t be a very good story.

And we all love a good story.