ROI By FJR:The Illusion of Understanding

R.O.I. By Frank J. Rich
The Illusion of Understanding
October 25th, 2012

The current drive to The White House raises a common question in the minds of citizens, the perceptive label of the American voter, of which only 54 percent do — vote, that is! “What does it all mean?”

 

The question is critical in efforts to inform and educate the voting public (in this case), or any public across the socio-economic plane. Since understanding is so hard to come by, a variety of “other” influences provide the information necessary to inform choice. This information is perhaps better characterized as SOU (Sense Of Understanding), the quality of one’s interpretive skills as applied to decision-making.

 

Assuming a tight connection between explanation and understanding leads to an objective reality, we will understand what is explained. But the definition of “understanding” depends on an objective sense of the term, which seldom relates to the simple cause and effect above. In fact, the SOU may more accurately be described as a rewarding experience that occurs in conjunction with an activity that tends to enhance our intellectual or emotional fitness. Thus, the theory of explanatory cognition shows how the SOU contributes to our explanatory success.

 

The President and his opponent appear to take different paths to the same end — economic recovery and growth, energy independence, affordable healthcare, education, Medicare, and healthy international relations. The objective course for each may be to simply explain the steps in the path to success. Yet, they remain polarized. Why?

 

Perhaps, the narrative fallacy of Nassim Taleb (The Black Swan) may give some clues. His anti-fragility model offers a method by which society (including markets) can withstand “difficult-to-predict models,” endowing these societies with the tools to grow from random events, errors, and volatility. Some in the dismal science might call that the definition of a free market system. More importantly, the narrative fallacy is the insidious obverse of veridical reflections. Some stories (explanations) are formed of content that poorly relates actual truth with experience. Have you ever concluded something to be correct only to discover later the truth of it is quite different? We seldom see the cause of a car accident as the result of what we did. The other person could “always” have avoided it.

 

It is reasonable, in the view of science, to remain skeptical about the ability of the SOU to produce real understanding. Perhaps, this is why most decisions are made before any formal decision-making process begins, and usually of emotion. Are we likely to elect a president who does not look presidential? If the SOU does not produce real understanding, as J. D. Trout, researcher and cognitive scientist suggests, the reasons are the well-established cognitive biases of over-confidence and hindsight. Far from being a reliable indicator of real understanding, Trout holds that “the SOU mostly reinforces a positive illusion we have about our own explanatory abilities.” (Overconfidence bias is the tendency to overestimate the likelihood that our judgments are correct. Hindsight bias is the tendency to believe that past events were more predictable than they really were.)

 

Our attempts at making sense of the world are what produce the narrative fallacies that inform our view of things. We assume that the limited information we have is all we need to make a choice among matters. It is not! The illusion of understanding that is ours by such inclinations — before they happen — is not the same as “knowing” what will happen. In fact we know much less about what happened than we think; it’s the illusion of understanding that informs it. How many of us knew that Apple was a struggling company in the face of PC market success until the introduction of the iPod; or, that within 2-years of their founding Google offered the company for sale at less than $1 million? Both were lucky in their own way to survive inevitable demise that was based on an unclear market reality of each company’s unique and veridical contribution.

 

We do not “know” that the policies of Mitt Romney’s projected administration will work anymore than we knew (in 2008) that the current administrations policies would fail to deliver the hoped for results. The stories we prepare to explain and inform are corrupted by overconfidence or hindsight miscalculations and lead to a mistaken view of the outcome. Few saw the rise of the NY Giants last season as their record and inconsistent performance suggested a playoff run was unlikely. After moving past the first of four opponents they would meet on their way to a second Super Bowl win in the Tom Coughlin era, the perception of their assumed capability — a narrative fallacy — began to change. Most agreed that they would not get past the next opponents — vaunted teams in Green Bay and New Orleans — until they did. By the time Super Bowl Sunday arrived, most thought the Giants were invincible, even though some held onto the view that Tom Brady (one man) would not lose a second Super Bowl to them. The Giants made easy work of it, and Brady’s fans were trying to reconstruct a model of their understanding that suggested a different outcome.

 

The sense-making mechanisms in the brain see things as more predictable than they really are. Many more pieces of the puzzle in this dynamic model than can be addressed here inform the view that creates the illusion that one can predict the future. Do managers influence the results of their firms? Of course, but the effects are smaller than the paycheck they receive might suggest. If the current election shows us anything, it may be that we see what we want to see and believe what we want to believe, at least according to science. The fortunes of the US will improve with the election of either candidate for president, at least for a while. But the narrative of achievement they construct will determine how well positioned their policies are for success; that is, if they are executed effectively.

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Introducing

Raising Father By Frank J. Rich

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