Sensemaking

7. SENSEMAKING

"We understand life backwards but live it forwards." — Søren Aabye Kierkegaard (Danish philosopher and theologian, 1813–1855)

"There has to be a reason!"

The 19th-century playwright and poet Oscar Wilde said: "The public have an insatiable curiosity to know everything, except what is worth knowing."

We don't like uncertainty. We have a need to understand and make sense of events. We refuse to accept the unknown. We don't like unpredictability and meaninglessness. We therefore seek explanations for why things happen. Especially if they are novel, puzzling or frightening. By finding patterns and causal relationships we get comfort and learn for the future.

TransCorp hired a team of people to find out why the new product failed. What did we do wrong in this case? There is a difference between: "Why did it happen?" and "What can cause this to happen?" The team looked for the specific factors that caused their new product to fail. They may learn more from asking: Why do new products fail? What general reasons are there? What key factors influence product failures?

"It is easy to be wise after the event," says Sherlock Holmes in The Problem of Thor Bridge. We read the present into the past. After an event, we know how things turned out. When trying to make sense of what has happened, we construct a plausible story or explanation that fits the outcome. But there are many ways an event or behavior can later be understood. There may be many contributing factors that fit the outcome, chance may be involved, or our guessed causes may also be consistent with other outcomes, including the opposite or prevention of the outcome. Ask: Could our explanation of the event help us predict future similar events?

This is the danger of relying on case-based stories. Stories may be selected to prove something and may give us a delusional sense of clarity. Knowledge about outcomes may also cast some doubt on reconstructions of historical events (given that the historian was not there). History is often composed of various events all coming together.

History is also explained by what has survived into the historian's present. Not all sources survive. Not everything gets recorded, memories are unreliable, evidence may be destroyed or deliberately ignored, and some things may be too embarrassing to mention. When Oliver Cromwell's portrait was painted, he told the artist: "Remark all these roughnesses, pimples, warts, and everything as you see me, otherwise I will never pay a farthing for it."

We also seem to have a tendency for romanticizing past achievements. The historian of medicine John Waller says of scientific discoveries in Einstein's Luck: "Many biographies seem to have been written to glorify idols, ancestors, disciplines, or even the nations in which the scientists lived and worked."

"Why was he so stupid? How could he have done that? It was obvious it would happen." The 19th-century Russian writer Fyodor Dostoevsky said: "Everything seems stupid when it fails." In hindsight, everything seems obvious. But we should look at earlier decisions in the context of their own time. Perhaps the actions made sense at the time. We don't know what uncertainties, conditions, or situational factors faced the decision-maker. Good decision-making can lead to bad outcomes and vice versa. If we believe that we predicted the past better than we did, we may also believe that we can predict the future better than we can. The Romanian dramatist Eugene Ionesco said: "You can only predict things after they've happened."

"The oil price will stabilize at $60." How do they know that? In the Cato Journal, Distinguished Professor Deirdre McCloskey said: "If you desire a ride to Baghdad, here is a magic carpet; if you desire your enemy dead, here is a magic doll; if you desire unlimited riches, here is a forecast of interest rates." We like it when people tell us what the future will look like. It reduces uncertainty. The comfort of a definite forecast can matter more to us than whether the forecaster has evidence of predictive skill.

Charles Munger says: "Around here I would say that if our predictions have been a little better than other people's, it's because we've tried to make fewer of them."

"It couldn't have happened by chance. There must be a reason." We see faces in inkblots and patterns in the movements of stocks. We find meaning in coincidences. We underestimate the influence of chance. We want to find reasons for all kinds of events — random or not. And if we don't find any, we construct them. We then choose the things that fit an intended pattern and ignore the rest. Studies show that we even try to figure out a pattern when we are told a process is random.

In one experiment, two lights were set up and flashed in a random sequence. Before each trial, research subjects tried to guess which of the two lights would appear. The studies showed that they tried to match the frequency of previous occurrences in their guesses. Similar studies showed that rats or pigeons instead chose the alternative that came up most frequently. If we assume that a red light occurs with a frequency of 80% and a green light with a frequency of 20%, we should bet on the most likely outcome every time: red. We then guess right 80% of the time. Trying to match the frequency only gave the right answer 68% of the time.

An example of our tendency to see patterns that aren't there is when we use unreliable tests for evaluating people. A test is reliable if it gives about the same result when repeated assuming the test measures a characteristic that is stable over time. A test is valid if it accurately measures what it claims to measure. The Rorschach inkblot test raises the question of how to interpret ambiguous material. Without a reliable scoring procedure and evidence of validity, an evaluator can read into an answer whatever they expect to find. Reliability and predictive value need to be assessed for the particular scoring system and use. A test’s familiarity does not by itself justify the conclusions drawn from it.

"Once upon a time in the land of…" We are quick to draw conclusions. Author and entrepreneur Seth Godin tells a story in his book All Marketers Are Liars. In the 1980s, some businessmen bought some branded stereo speakers and packed them into a truck. They parked the truck behind a dorm at Harvard and started whispering "Pssst… Hey! You wanna buy some speakers?" They never said that the speakers were stolen but passersby assumed they were. They therefore had to be a bargain. The businessmen sold out in no time. Even if the speakers cost a little more than they did in the local store.

We love stories and story-telling. Good stories and drama get our attention. They give meaning to events. We rationalize decisions and justify choices by telling ourselves comforting stories. We use stories to understand, remember and make sense of events. But sometimes we have a hard time separating a true story from a false one. After an event a story is created so that the event makes sense. Remember that a story can have many possible beginnings (and endings).

Keep in mind

• Look for alternative explanations and what normally happens. Think about general reasons.
• Consider how other possible outcomes might have happened. Don't underestimate chance.
• In hindsight, everything seems obvious. If we look forward, there are many possible outcomes.