The Sensational and the Black Swan
Narrative and the salience of sensational facts bias probability estimates, causing people to overestimate events with vivid causes and underestimate those without, leading to misjudged risks and poor decisions.
THE IDEA
Narrative, and the salience of sensational facts, can mess up our projection of the odds. In an experiment conducted by Kahneman and Tversky, forecasting professionals were asked to imagine the following scenarios and estimate their odds.
- A massive flood somewhere in America in which more than a thousand people die.
- An earthquake in California, causing massive flooding, in which more than a thousand people die.
Respondents estimated the first event to be less likely than the second. An earthquake in California, however, is a readily imaginable cause, which greatly increases the mental availability—hence the assessed probability—of the flood scenario.
Likewise, if I asked you how many cases of lung cancer are likely to take place in the country, you would supply some number, say half a million. Now, if instead I asked you how many cases of lung cancer are likely to take place because of smoking, odds are that you would give me a much higher number (I would guess more than twice as high). Adding the because makes these matters far more plausible, and far more likely. Cancer from smoking seems more likely than cancer without a cause attached to it—an unspecified cause means no cause at all.
Consider a plot in the style of E. M. Forster’s distinction between events and their causes. Which of these two statements seems more likely?
Joey seemed happily married. He killed his wife.
Joey seemed happily married. He killed his wife to get her inheritance.
Clearly the second statement seems more likely at first blush, which is a pure mistake of logic, since the first, being broader, can accommodate more causes, such as he killed his wife because he went mad, because she cheated with both the postman and the ski instructor, because he entered a state of delusion and mistook her for a financial forecaster.
All this can lead to pathologies in our decision making. How?
Just imagine that, as shown by Paul Slovic and his collaborators, people are more likely to pay for terrorism insurance than for plain insurance (which covers, among other things, terrorism).
The Black Swans we imagine, discuss, and worry about do not resemble those likely to be Black Swans. We worry about the wrong “improbable” events.
When to use it
When making financial forecasts, deliberately consider scenarios without a dramatic cause to avoid overestimating their probability.
In risk management, challenge narratives that provide a single, vivid cause for an event; ask what other causes might be at play.
When designing surveys or questions, avoid priming respondents with specific causes that inflate perceived likelihoods.
In public policy communication, be aware that sensational examples can distort public perception of risk (e.g., terrorism vs. everyday accidents).
FROM THEORY TO EVERYDAY LIFE
In practice
Flood vs. Earthquake
Forecasting professionals rated a flood killing over 1000 people as less likely than an earthquake in California causing a flood of that magnitude. The added cause (earthquake) made the event seem more probable due to increased mental availability.
Cancer Cases
Taleb predicts that specifying smoking as a cause could prompt a higher estimate of lung cancer cases than asking about all cases. This is a thought experiment about plausibility, not a reported study in which estimates doubled.
Terrorism Insurance
In the insurance comparison Taleb describes, people were more willing to pay for terrorism coverage than for broader coverage that also included terrorism. Naming a vivid cause made the narrower policy more appealing.
A MOMENT TO REFLECT
Put it to work.
Recall a recent decision where you overestimated the likelihood of an outcome because a vivid cause was given. How could you reframe the situation without that cause?
When evaluating risks, how often do you ask yourself whether the absence of a specific cause might make the event more broad and thus more probable?
Think of an insurance or investment choice you made. Were you swayed by a sensational story rather than the base-rate probabilities?
CONTINUE THE CONVERSATION
Source texts
- The Black Swan The Impact of the Highly Improbable With a new section On Robustness and Fragility (Nassim Nicholas Taleb)