Children between the ages of tree and five have
an (annoying) habit of asking repeatedly Why.
Although these repeated questions of why
may get to the nerves of many adults, they are very useful for intellectual
development. We humans have a very basic need of understanding why things
around us are the way they are and why they happen the way they do.
Despite this intrinsic curiosity and need for
understanding the whys of the world, we are very often incapable of
understanding (true) causality. It seems to be a paradox, but there’s a
reasonable explanation, which is that as long as we find a plausible answer to
the question why, we do not look any
further.
Let me illustrate this with an example from
Mother Nature. Earthquakes are reality of our planet. Most importantly,
earthquakes come with damage if they are quite large. Engineering has tackled
some of the downsides of earthquakes such as buildings collapsing, but by far
there still are buildings that fall and people are killed and injured in
earthquakes. In face of a big earthquake there is nothing anyone can do. It is only naturally that people fear
earthquakes and it is only natural that only the possibility of a big
earthquake generates a bit of hysteria.
Apart from the disasters they generate,
earthquakes have another particular characteristic, namely that they can’t be
accurately predicted with more than a few tens of seconds before they happen. Even the current technology can’t do very
well when it comes to predicting earthquakes. Just as a note, even those 30
seconds are a great achievement and come with huge benefits such as the
possibility of switching off nuclear power-plants, natural gas distribution in
cities etc.
Although we cannot accurately predict
earthquakes, we know what generates them: the collision between tectonic
plates. Putting things very simplistically, in essence an earthquake is the
release of accumulated tension between two tectonic plates.
Knowing this and keeping things simple, the
tension accumulated between two tectonic plates can be released gradually –
which results in many small earthquakes, or it can be released at once which
results in big earthquakes.
Keeping in mind this simplistic rule, we can
say that when a small (and non-dangerous) earthquake happens, it is in fact
good news. This is because some of the tension accumulated between two tectonic
plates was released, thus the remaining tension is smaller which in turn means
that the probability of a big (and dangerous) earthquake occurring in the near
future decreased.
Human psychology is, however, quite different.
We humans become scared and even panicked when we experience a small
earthquake. This is because the notion of earthquake is suddenly very salient
in our minds and all the disastrous consequences of a big earthquake are vivid
in our imagination.
To sum up, when a small earthquake occurs, the
objective probability of a big earthquake to hit in the near future decreases
because part of the tension between the tectonic plates was released. However,
in our minds, the occurrence of a small earthquake makes the possibility of a
big one to hit in the near future more vivid, thus increasing the subjective
probability of it occurring.
Another similar illustration on our fallacy to
understand true causality comes from Australia where at the end of 2013 there
was a huge bush-fire. Naturally there are many causes for a bush-fire such as
negligence in using open flame, but one major cause of big bush-fires is that
there is a lot of material that can burn. TV reports said that in the past ten
years there were no considerable bush-fires in the areas hit. So, the physical,
pragmatic cause of the huge bush-fire – flammable material – was there and has
accumulated in quite a large time-span.
On the Psychology side, it is only natural for
people to be terrified by huge fires (it is in our hard-wiring). However, I am
convinced that in the ten years preceding 2013’s huge bush-fire, very few
people were concerned or terrified by the lack of small-scale bush-fires. In
fact, it is very plausible for people to have thought during those ten years
that the danger (risk) of bush-fires to have decreased since no significant
bush-fire happened in the recent past (this was before the huge one in the end
of 2013).
This way of thinking has a huge influence on
the behaviour of purchasing risk managing products and services such as
insurance. The sales of insurance policies that cover the risk of earthquake
(or bush-fires) increases after the occurrence of an earthquake (big or small,
but big ones have a stronger influence). Similarly, sales of such insurance
policies decrease when there hasn’t been an earthquake (or fire) for quite some
time. Most interestingly, this dynamic of behaviour is completely the opposite of
the dynamic of objective risks. After an earthquake (may it be small or big)
the objective risk of a big earthquake occurring in the near future is lower,
whereas during a period without earthquakes (or fires) the risk of a big one
with subsequent big damages is, in fact, higher.
Small bad things such as small earthquakes and
small bush-fires are, objectively, good news because they contribute to decreasing
the risk of big bad things (big earthquakes and huge bush-fires that go out of
control). However, the huge majority of people doesn’t think this way and
panics when small bad events occur. Moreover, the lack of small bad things goes
mostly unnoticed and when thinking of the risk of big bad things many people perceive
it as being low since not even small bad things happened in the recent past.
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