Alternative Histories
Alternative histories means evaluating a decision against the outcomes that were possible when it was made. A favorable result can follow a poor choice, and an unfavorable result can follow a well-supported one.
THE IDEA
Alternative Histories
Taleb uses alternative histories to examine the role of chance in a decision’s result. Consider what else could plausibly have happened, given the information available at the time, and how the chosen action compared with its alternatives.
The actual outcome matters, but it is only one realization. Assessing the possible outcomes and their likelihoods helps distinguish a sound decision from a lucky result. Merely imagining alternatives is not enough; they must fit the circumstances and evidence.
When to use it
When making investment decisions, consider multiple possible futures rather than focusing on the single outcome that occurred.
In performance reviews, assess results alongside the information and alternatives available when decisions were made.
When reading news about stock market changes, think about the random component and alternative scenarios.
During strategic planning, use scenario analysis to explore different possible outcomes of a decision.
FROM THEORY TO EVERYDAY LIFE
In practice
Investment Evaluation
A portfolio manager is evaluated on the performance of her investments. Instead of only looking at the final return, she considers alternative scenarios that could have occurred given different market conditions, helping her assess the quality of her decision-making process.
Sports Strategy
A football coach attempts a fourth-down play and it fails. To assess the decision, compare its estimated chances and consequences with those of punting or another available action, using information known before the play. Failure alone does not show the choice was poor, and possible success alone does not show it was best.
A MOMENT TO REFLECT
Put it to work.
How might you evaluate a decision by considering alternative outcomes rather than just the actual result?
In what situations do you rely on conventional wisdom that might be contrary to probabilistic thinking?
How can journalists better report on random events to avoid misleading the public?
Often confused with
References
- Pensées — Blaise Pascal (1670)
- Fooled by Randomness — Nassim Nicholas Taleb (2001)
CONTINUE THE CONVERSATION
Source texts
- Fooled by Randomness The Hidden Role of Chance in the Markets and in Life (Nassim Nicholas Taleb)