What’s that shape in the clouds?
What did Yeats mean when he wrote that line in that way?
I’ve had good hands playing blackjack all evening. Why does it keep coming up that way? What does it mean?
Do you ever get the sense that we have a tendency to read meaning into things that may not really be there?
If so, you’re right.
It turns out that there’s an asymmetric evolutionary upside in pattern matching. If you spot a real pattern, the potential payoff is huge, if you spot an illusory pattern (even if it’s entirely fictitious) then the likely cost is low.
At least that was the case in a world before financial markets and complex compounding systems.
Let me give an example.
Imagine your hunter-gatherer ancestor was walking through a field and they heard a rustling in the grass.
Perhaps they’ve heard a rustling in the grass just like that before and that time it turned out to be a snake. If our brains match that pattern, the payoff is huge - you don’t die of sepsis and, instead, pass on your genes. Good result.
If we recall that pattern and it turns out there was no snake... in all likelihood the costs weren’t that high. Perhaps you ran away unnecessarily but lived to see another day.
This simple evolutionary trade-off left a huge mark on our brains and, by extension, the way we see the world.
We have a tendency to ‘read into things’, to see patterns that aren’t there. We find a signal in meaningless noise.
This little phenomenon might be responsible for more than you think: conspiracy theories, seeing the Virgin Mary in the condensation on a Hungarian phone booth (true story), jumping to false patterns in financial markets, anxiety disorders, seeing faces in things. It’s everywhere.
And that’s a tricky one.
We want to remove our biases, as much as possible, in business, in investing, in a lot of our decision making.
The last thing we want to do is be led by our assumptions.
And yet, how can you appreciate the beauty of a Yeats’ poem or let yourself get taken away by music if you won’t be lead down the rabbit hole?
After all, sometimes the best things in life are probably based on noise, not signal.
Recognize your biases, but don’t be a killjoy. I know you see the water buffalo in the dentist’s lamp.
You’re only human after all.