Limousine Philosopher
A cognitive bias illustrating how people are blind to rare, high-impact events (Black Swans), and a story about using a limousine driver persona to avoid social labeling and observe human behavior.
THE IDEA
The war in Lebanon and the crash of 1987 seemed identical phenomena. It became obvious to me that nearly everyone had a mental blindspot in acknowledging the role of such events: it was as if they were not able to see these mammoths, or that they rapidly forgot about them. The answer was looking straight at me: it was a psychological, perhaps even biological, blindness; the problem lay not in the nature of events, but in the way we perceived them.
I end this autobiographical prelude with the following story. I had no defined specialty (outside of my day job), and wanted none. When people at cocktail parties asked me what I did for a living, I was tempted to answer, "I am a skeptical empiricist and a flâneur-reader, someone committed to getting very deep into an idea," but I made things simple by saying that I was a limousine driver.
Once, on a transatlantic flight, I found myself upgraded to first class next to an expensively dressed, high-powered lady dripping with gold and jewelry who continuously ate nuts (low-carb diet, perhaps), insisted on drinking only Evian, all the while reading the European edition of The Wall Street Journal. She kept trying to start a conversation in broken French, since she saw me reading a book (in French) by the sociologist-philosopher Pierre Bourdieu—which, ironically, dealt with the marks of social distinction. I informed her (in English) that I was a limousine driver, proudly insisting that I only drove "very upper-end" cars. An icy silence lasted the whole flight, and, although I could feel the tension, it allowed me to read in peace.
[*] It is remarkable how fast and how effectively you can construct a nationality with a flag, a few speeches, and a national anthem; to this day I avoid the label "Lebanese," preferring the less restrictive "Levantine" designation.
[*] Benoît Mandelbrot, who had a similar experience at about the same age, though close to four decades earlier, remembers his own war episode as long stretches of painful boredom punctuated by brief moments of extreme fear.
[*] The historian Niall Ferguson showed that, despite all the standard accounts of the buildup to the Great War, which describe "mounting tensions" and "escalating crises," the conflict came as a surprise. Only retrospectively was it seen as unavoidable by backward-looking historians. Ferguson used a clever empirical argument to make his point: he looked at the prices of imperial bonds, which normally include investors' anticipation of government's financing needs and decline in expectation of conflicts since wars cause severe deficits. But bond prices did not reflect the anticipation of war. Note that this study illustrates, in addition, how working with prices can provide a good understanding of history.
[*] We will see in Chapter 10 some clever quantitative tests done to prove such herding; they show that, in many subject matters, the distance between opinions is remarkably narrower than the distance between the average of opinions and truth.
[*] I then realized that the great strength of the free-market system is the fact that company executives don't need to know what's going on.
[*] I specialized in complicated financial instruments called "derivatives," those that required advanced mathematics—but for which the errors for using the wrong mathematics were the greatest. The subject was new and attractive enough for me to get a doctorate in it. Note that I was not able to build a career just by betting on Black Swans—there were not enough tradable opportunities. I could, on the other hand, avoid being exposed to them by protecting my portfolio against large losses. So, in order to eliminate the dependence on randomness, I focused on technical inefficiencies between complicated instruments, and on exploiting these opportunities without exposure to the rare event, before they disappeared as my competitors became technologically advanced. Later on in my career I discovered the easier (and less randomness laden) business of protecting, insurance-style, large portfolios against the Black Swan.
When to use it
In finance, to remind investors that rare market crashes are often ignored until they happen, and to encourage robust risk management.
In social psychology, to study how people form judgments based on superficial labels and how to avoid being misled by appearances.
In personal development, to practice skepticism and question one's own assumptions about reality and probability.
In business, to understand the limitations of forecasting and the importance of preparing for unpredictable disruptions.
FROM THEORY TO EVERYDAY LIFE
In practice
The Transatlantic Flight Incident
The author, while reading Bourdieu's book on social distinction, pretends to be a limousine driver to a wealthy woman on a plane, which leads to an icy silence and allows him to read in peace. Social labels and assumptions can be manipulated; people often overlook the possibility of unexpected roles.
War in Lebanon and Crash of 1987
The author observes that both events were seen as identical phenomena in terms of people's blindness to their occurrence, highlighting a general mental blindspot for rare, high-impact events.
A MOMENT TO REFLECT
Put it to work.
How does the limousine philosopher story demonstrate the human tendency to overlook rare events?
In what ways can you use the concept of 'limousine philosopher' to become more aware of your own biases in decision-making?
How might pretending to be something you're not help you observe social dynamics more objectively?
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)