Humans are wired to see patterns. Our brains desperately connect dots and concoct stories, even when none exist. This is because 10,000 years ago, mistaking a rabbit in the bushes for a lion made you look silly, while the reverse got you eaten.
We’re still using that same ancient hardware today.
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The Illusion of Patterns
We’re “probability blind.” We turn random sequences into narratives and ignore independence.
Example: 1913 Monte Carlo roulette—black hit 26 times in a row. Gamblers lost millions betting on red because “it was due.” But each spin was independent of the previous one. The same is true for a coin toss.
Survivorship Bias
We only see winners. The losers stay invisible.
If you take an infinite number of monkeys and sit each one down in front of a typewriter, eventually one of them will type out The Iliad.
We’d then hire that monkey to write the sequel—forgetting it was pure chance, not talent. This happens all the time in real life. (with humans, not monkeys)
Better heuristic: Judge the process, not the outcome.
$10M earned from playing Russian roulette is not the same as $10M earned from a career in dentistry. The people who died playing Russian roulette aren’t around to tell you that it’s a bad idea. But those who lived, aka The Survivors, will be happy to tell you how easy it was, and how anyone can earn $10M.
In 1,000 parallel lives, the Russian roulette guy dies ~167 times. The dentist doesn’t.
Asymmetry & Black Swans
Being right 99% of the time is irrelevant if the 1% is fatal.
Black Swans are rare, unpredictable events with massive impact. We only find out how to explain them after they happen.
Stop asking over “How likely will this happen?” and start asking “What are the consequences if it does?”
You want the roof of your house to survive the once-in-a-century flood.
You want cheap equity in a start-up that, if successful, will be worth a lot of money.
Bottom line: The world is disproportionately shaped by random, large-scale events, aka Black Swans. Master the mental model of randomness, and you will turn uncertainty into a competitive advantage: surviving the fatal 1% and capturing the life-changing upside.
- Dante
p.s. These newsletters were getting too long. I will start keeping them short, like this one. If you want the full Breakdown, watch the YouTube video.
Sources
Fooled by Randomness – Nassim Taleb
The Great Mental Models Vol. 3 – Shane Parrish