Connecting the Dots

Connect the DotsIt’s a consuming question for all Americans:  Should the FBI, the CIA, Homeland Security and related entities have “connected the dots” about the Tsarnaev brothers and thus been able to prevent the Boston Marathon bombings?  Essentially everyone — politicians, the mediapartisans, the expert community, the Feds and even conspiracy theorists (see below; WARNING: Very Strong Language) — has an interest and seems to have an opinion as to why the Boston marathon plot went undetected, whether it could or should have been detected, who (if anyone) shoulders the blame and how any security weaknesses highlighted by the bombing can be shored up. Tuesday, the Senate Intelligence Committee began an inquiry that will deliver an accounting of who knew what when. According to conventional wisdom (in this instance delivered by The New York Daily News), the panel will “determine why agents failed to learn more, as well as how they let Tsarnaev slip from view as he became radicalized.”

I expect any number of people — and especially those with an axe to grind — to try to assign blame and offer seemingly clear-cut prescriptive correctives. I predict that many will express amazement that nobody did connect the dots. The plot will seem so obvious to some that their working assumption will be some combination of (a) conspiracy and/or (b) utter incompetence. 

But, no matter how seemingly obvious the alleged errors may seem in (20:20) hindsight, I am more than a little skeptical about how useful the alleged clues could or would have been in real-time

Just to be clear, anyone who truly screwed up should be held accountable.  And we should surely look carefully and comprehensively for whatever improvements we can make to the structures and systems used to protect us from terrorist attacks. That said, while I am by no means an expert, we would also be wise not to jump to any conclusions about what could or should have happened in the days and weeks leading up to the bombings.

ConnectWe are all too prone to confirmation bias, motivated reasoning and to their corollary, what Nassim Taleb calls the “narrative fallacy” — looking backward and creating a pattern to fit events to fit within a story that explains what happened and what caused it to happen.  Because of the ways our minds work, such reconstructions take on an apparent obviousness, such that the outcome seems essentially inevitable.  It can (all too readily) seem like any child should have recognized what was coming — that connecting the dots should have been easy. 

Not so fast.  Think about our own industry for a bit.

Easy ButtonIn retrospect, the real estate/mortgage bubble looks blatantly obvious.  People with minimal incomes and lousy credit buying multiple properties.  Mixing a bunch of highly risky mortgages together to create AAA-rated bonds that are said to be impervious to interest rate risk.  VAR models that assume defaults won’t happen.  It all seems too ridiculous to be true today.  Shockingly few recognized it at the time.

With hindsight, the tech bubble seems foreordained.  Double-digit annual gains as far as the eye can see. Day-trading wunderkind.  Companies with no infrastructure, no experienced management, no business plan and only a vague idea about “monetizing the internet” received enormous infusions of equity capital and turned their founders into IPO multi-millionaires — at least for a while.  Webvan. Pets.com. eToys.  ThrowAnythingAgainstTheWallAndSeeWhatSticks.com.

Okay, I made that last one up.  But you get the idea. It seems nuts now.  But most people were shocked (and many devastated) when the music stopped and they were left without a chair. 

Random DotsReal life has enormous numbers of variables.  Differentiating signal from noise is astonishingly hard. Before we castigate and punish anyone over their alleged sins in failing to connect the dots in Boston, we should remind ourselves of the power of the narrative fallacy. Connecting the dots is a highly uncommon skill.

One thought on “Connecting the Dots

  1. Pingback: Why to Keep a Portfolio Journal

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