Drunkard's Walk - Leonard Mlodinow [103]
People systematically fail to see the role of chance in the success of ventures and in the success of people like the equity-fund manager Bill Miller. And we unreasonably believe that the mistakes of the past must be consequences of ignorance or incompetence and could have been remedied by further study and improved insight. That’s why, for example, in spring 2007, when the stock of Merrill Lynch was trading around $95 a share, its CEO E. Stanley O’Neal could be celebrated as the risk-taking genius responsible, and in the fall of 2007, after the credit market collapsed, derided as the risk-taking cowboy responsible—and promptly fired. We afford automatic respect to superstar business moguls, politicians, and actors and to anyone flying around in a private jet, as if their accomplishments must reflect unique qualities not shared by those forced to eat commercial-airline food. And we place too much confidence in the overly precise predictions of people—political pundits, financial experts, business consultants—who claim a track record demonstrating expertise.
How the top funds in 1991–1995 performed in 1996–2000.
One large publishing company I’m familiar with went to great pains to develop one-year, three-year, and five-year plans for its educational software division. There were high-paid consultants, lengthy marketing meetings, late-night financial-analysis sessions, long offsite afternoon powwows. In the end, hunches were turned into formulas claiming the precision of several decimal places, and wild guesses were codified as likely outcomes. When in the first year certain products didn’t sell as well as expected or others sold better than projected, reasons were found and the appropriate employees blamed or credited as if the initial expectations had been meaningful. The next year saw a series of unforeseen price wars started by two competitors. The year after that the market for educational software collapsed. As the uncertainty compounded, the three-year plan never had a chance to succeed. And the five-year plan, polished and precise as a diamond, was spared any comparison with performance, for by then virtually everyone in the division had moved on to greener pastures.
Historians, whose profession is to study the past, are as wary as scientists of the idea that events unfold in a manner that can be predicted. In fact, in the study of history the illusion of inevitability has such serious consequences that it is one of the few things that both conservative and socialist historians can agree on. The socialist historian Richard Henry Tawney, for example, put it like this: “Historians give an appearance of inevitability…by dragging into prominence the forces which have triumphed and thrusting into the background those which they have swallowed up.”5 And the historian Roberta Wohlstetter, who received the Presidential Medal of Freedom from Ronald Reagan, said it this way: “After the event, of course, a signal is always crystal clear; we can now see what disaster it was signaling…. But before the event it is obscure and pregnant with conflicting meanings.”6
In some sense this idea is encapsulated in the cliché that hindsight is always 20/20, but people often behave as if the adage weren’t true. In government, for example, a should-have-known-it blame game is played after every tragedy. In the case of Pearl Harbor (and the September 11 attacks) the events leading up to the attack, when we look back at them, certainly seem to point in an obvious direction. Yet as with the dye molecule, the weather, or the chess game, if you start well before the fact and trace events forward, the feeling of inevitability quickly dissolves. For one thing, in addition to the intelligence reports I quoted, there was a huge amount of useless intelligence, with each week bringing new reams