Daniel Kahneman at the 2011 LMCM Thought Leader Forum

Found via the Corner of Berkshire & Fairfax. You can also listen to this via Podcast HERE.

Well, there is a growing agreement, I think, and it's been very clear in the talks today, that we don't understand the world very well. Nassim Taleb, who's been mentioned a lot and is one of my heroes, is writing a book now, and what I really like is the subtitle of the book, and the subtitle is How to Live in a World That We Do Not Understand. A very good question.

We systematically underestimate the amount of uncertainty to which we're exposed, and we are wired to underestimate the amount of uncertainty to which we are exposed. It is actually extremely difficult to accept how much uncertainty there is. You can do an exercise on yourself. When you think about "Harry Potter" really, you still think it must be exceptional. When you think of Mozart, was it luck that Mozart is what Mozart is, or could it have been Salieri?

What we really learned today, what we could have learned from Matthew Salganik’s presentation, was that there are hundreds of books that could have been just as important as Harry Potter. There is nothing special about Harry Potter within the class of books that are not failures. And the choice, and this is what Matthew was telling us, the choice is random, it is unpredictable. There is no system to it, there is no logic to it, that's just the way it happens. Very difficult to accept.

And part of the difficulty of understanding how much luck, the role that luck plays in our lives and in the determination of these events, is that as soon as something happens, we understand why it happened. And this is one of the things that Nassim went into. He has learned quite a bit of psychology, actually, and that is a very important bit of psychology, which is that we are really not as surprised as we ought to be by surprises.

And the reason we are not as surprised is that as soon as something happens that we really had not anticipated, we understand it. We work it out. That's a mistake we'll never do again. Our view of the world immediately changes, and furthermore we are systematically mistaken about what we used to think earlier.

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Related link: LMCM 2011 Thought Leader Forum

Related book: Thinking, Fast and Slow

Related previous post: Authors@Google: Daniel Kahneman