Falling Cats, Black Swans and The Perils of Believing Your Own Hype
Our brains are trained to ignore the evidence we can not see. This bias has huge implications for your business.
This post is adapted from a keynote presentation made by Dominic Pride to D:Health’s Partnering and Opportunity in Digital Health Conference June 9. The Slideshare is here
As I move deeper into life sciences and consulting to health organisations, I’m often challenged on how my experience in music and digital services qualifies me to talk about anything to do with patients.
This onslaught usually gets a double-barrelled response. Firstly, my colleagues and I bring the digital service expertise, not the medical knowledge. Secondly, working with music has allowed me to witness first hand what happens to the canary in the coal mine of digital disruption.
And while every medic has a horror story from their early days in A&E, we’ve seen some very different kinds of casualties along the way. Here ‘s a picture of the place where I came from — the music business. And you don’t have to be a domain expert to tell just how well this particular patient is doing from the chart.
This graph shows US recorded music sales around the turn of the century. It was a story pretty much repeated worldwide and as you can see, this patient has been in terminal decline since Napster arrived on the scene in 1999.
Peer-to-peer file sharing was the single biggest shock to the system that this business had seen in the 100 years since Edison invented the phonograph. It was more disruptive than any other technology which had been used by the business. Today, many executives are still in denial about what happened to their product-based business when digital turned up.
The arrival of this disruptive technology was unexpected and catastrophic. It was in fact a classic black swan event.
It was the Scottish thinker David Hume who first addressed the challenge of the Black Swan. You can see his exact words are in the illustration here, but to paraphrase his 18th century English, “just because all swans you’ve seen are white, that doesn’t mean that black swans don’t exist.”
This idea of the random, unseen, rare yet possible occurrence was developed and popularised more recently by Nasim Nicholas Taleb in his 2008 book The Black Swan. Taleb looked at the impact of these events on global financial markets and how most were blind to the possibility of
We can summarise his conclusions as “just because rare events haven’t happened yet, that doesn’t mean they’re not possible.”
Taleb lays out quite clearly why Black Swan events have such a catastrophic impact. It ‘s not the frequency of these events which is important. It’s the magnitude of the outcome.
Yet as humans we heavily discount the possibility of a black swan existing because we have not yet seen one.
Our minds are biased towards what we know and experience, and we discount what we have not experienced.
The effect of these biases features heavily in Taleb’s second book, Fooled by Randomness.
In this,he argues that the stock market traders who remain in position are not necessarily successful because of skill or judgement. They are as lucky as the single ape from the infinite pool of typing monkeys who just happens to clatter out an exact replica of Homer’s Ilead.
They are, he argues, Acute Lucky Randomness Fools. These people have survived simply because their trading style happens to have fitted the bent of the market, not through any superior skill or judgment.
In fact, their continued presence in the market represents no more than survivorship bias in action.
What do we mean by survivorship bias, , it’s the the logical error of concentrating on the people or things that “survived” and overlooking those that didn’t because they are no longer visible.
Let me explain the concept with an example. If you’re a cat lover, skip a couple of paragraphs.
A study in 1987 found that cats who fall from less than six stories, and are still alive, have greater injuries than cats who fall from higher than six stories. The theory is that cats reach terminal velocity after righting themselves at about five stories, and after this point they relax.
So the higher falling cats have less severe injuries. On the basis of evidene in front of us, it’s simple.
Yet this is a classic case of survivorship bias in action. The cats surveyed are the ones who sustained injuries and survived. Cats which die in falls are unlikely to turn up in a vet’s surgery, so the cats killed in falls from even higher buildings didn’t even show up in the study.
Let’s think about that for a minute. The fact that a cat, or a trader, or a digital health startup makes it through to the statistics means that they’ve survived to be counted and noticed. The ones who didn’t make it aren’t seen or counted.
This is a clear and evident cognitive bias in the way we see things. Our minds are trained to deal with only the information in front of us, and not what we don’t see.
So why is this blindness dangerous ?
Firstly, survivorship bias can lead to over-optimism because we ignore the failure which we can not see.
Worse still, it can also lead to the false belief that the successes in a particular group can be assigned to some special property rather than just good fortune like our lucky chimp in the typing pool who happened to bang out a classic.
This leads us to look for patterns and traits — maybe an upbringing, an exercise regime or process — which we believe can be extracted and used to our benefit.
In doing so we make the common mistake of confusing causation and correlation.
But being neither stock market traders or leaping cats, what does all this mean for everyone in digital health, or in any business today?
It means first of all that when looking at success — whether your own or someone else’s — be aware that there’s an inherent bias present in the way you are looking at the evidence. Like the cats that didn’t survive the fall, the traders who blew up and are now insurance salesmen, the digital health companies who didn’t make it are, by default, not present in the market.
Secondly, the fact that you have been successful so far does not equip you to be successful in the future. Dominant market share and powerful distribution did not equip the leading record companies to deal with Napster.
In digital health we have no excuse. What’s happening to health provision is less random and more predictable than a run on the currency or Napster turning up.
With 16 years of hindsight, we can predict with certainty that digital disruption, which appeared as a black swan event in the music business is going to directly impact health. Quite how, remains to be seen, but it is no longer unexpected.
Better still, we can learn from other industries which believed that their success was assured by their ownership of some unique asset such as content, real estate or banking licences. Music was disrupted by Napster then transformed by iTunes and then Spotify. Taxi drivers worldwide are up in arms about Uber, while AirBnB disrupts the accommodation industry. Peer to Peer Lending is disrupting anyone with a banking license. Healthcare will be no different.
So being around in one year or five years time might be less to do with what’s made us successful so far, and more to do with how we are planning to address the uncertainty of the future.
Taleb has some good news for people like us; “The things that come with little help from luck are more resistant to randomness.”
As an organisation you can make your own luck, and set yourself up to be resilient to so called unforeseen events by introducing some behavioural paradigms:
- First of all, by partnering, learning and sharing success and failure
- Experience failure by encouraging it internally. Find a sandboxed way to get your own failure in house, acknowledge, confront and learn from it
- Crucially, above all, don’t ever be prone to the cognitive bias and assume your past performance will guarantee your future success.
In short, we’re all out there pitching and selling. But don’t for one second believe the power of your own hype.
