Fat Tony vs. Dr. John: The challenge of rationality under uncertainty

Can we be rational under uncertainty? Yes, but it depends what you mean by rational.

In The Black Swan, Nassim Taleb imagines the following game: Suppose I have a coin that is not rigged, that is, it has an equal chance of coming up heads or tails when tossed. I flip it 99 times and it comes up heads every time. What are the odds that I’ll get tails on the next flip? Take a moment to prepare your answer.

Taleb suggests the game to two fictional characters, Fat Tony and Dr. John. Born in Brooklyn, a working-class neighborhood in New York, Fat Tony is a street kid. He left school as soon as he could and made his own way in life. He made a modest fortune in real estate and finance, buying up bank-owned properties at low prices. His life is a mess, he eats everything, doesn’t have a desk or even a diary, doesn’t go to the gym, and much of his success is due to his understanding of human psychology. For example, he quickly realized that the people he was dealing with to liquidate foreclosed homes had no interest in negotiating hard on the price, they just wanted to get rid of them as quickly as possible. “Finding the scapegoat is the key to success,” is his golden rule, and for him, the scapegoat is often a bank.

Dr. John is the opposite of Fat Tony. He’s an engineer who works as an actuary for an insurance company. With a Ph.D. in physics, he lives in New Jersey, a state favored by the middle class who can’t afford to live in nearby New York. His life is meticulously organized, he’s efficiency itself, and he pays strict attention to his diet. Although the meeting between Fat Tony and Dr. John is unlikely, Taleb manages to get them together in a bar and asks them his question.

Suppose a coin is not rigged, that is, it has an equal chance of coming up heads or tails when tossed. I flip it 99 times and get heads every time. What is the probability that I’ll get tails on the next flip?

Dr. John: Trivial question. 50%, of course, since you are assuming equal probability for each side and independence between flips.

Taleb: Fat Tony?

Fat Tony: No more than 1%, of course.

Taleb: Why not? I told you that the coin is not rigged, which means a 50% probability for each side.

Fat Tony (in his characteristic way): You’re full of shit or a perfect sucker to buy that 50% story. The coin is obviously rigged. It can’t be an honest game.

Taleb: But Dr. John said 50%.

Fat Tony: I’ve known these guys with nerdy attitudes from my banking days. They think too slow. You can rip them off.

I want to believe

Taleb then mischievously asks the reader: “Which of Fat Tony or Dr. John would you like to see elected mayor of New York?” Dr. John thinks entirely within the frame he’s given. He never questions it. Beyond the frame is forbidden territory, and what’s more, it’s invisible to him. Fat Tony, on the other hand, systematically denies the existence of the frame. No matter how many people tell him, or even guarantee him, that the piece is not rigged, he does not believe such a guarantee, even from someone he should a priori trust.

Fragile or robust

Dr. John is fragile, which means he’s sensitive to black swans, those low-probability, high-impact events. As long as the frame is solid, as long as the outside doesn’t affect the inside, as long as the rules he’s been given are correct, his “rational” approach is superior in terms of performance. Of course, if the dice isn’t loaded, there’s a 50% chance that it will come up tails. In other words, if all goes well, all goes well. But the nature of black swans is that they come from outside the box, so if you limit your thinking to the box, sooner or later you will be exposed to one.

Fat Tony, on the other hand, is robust. He can’t really put a number on the probability of the coin coming up tails, but he knows without hesitation that it’s far from 50%, and that the coin is rigged, despite the assurances of someone honorable. He doesn’t even need to know if Taleb is lying to him or if Taleb is wrong. He avoids black swans more easily. Note that he doesn’t find the answer, he “only” avoids giving the wrong answer. This is what Taleb calls negative empiricism. That’s robustness.

The tragedy of good pupils

Taleb observes that good pupils like Dr. John often fall victim to this inability to think outside the box in their careers. He adds, “There is a sterile, obscurantist quality often associated with academic knowledge that gets in the way of understanding what happens in real life”. This observation brings to mind George Orwell’s quote that there are ideas so absurd that only an intellectual could believe them. It could be put the other way around: there are ideas so unexpected that an intellectual will always refuse to believe them until it’s too late: that’s what makes it so difficult for us to comprehend novel events. And yet, Aristotle placed the capacity for astonishment at the origin of all philosophy.

To deal with the unprecedented, it’s absolutely essential to be able to question an obvious rule, and above all to understand that the “frame” is in flux. Question to the reader: How many Fat Tonys do you have in your organizations? If your team consists entirely of Dr. Johns, you are fragile, i.e., your sensitivity to black swans is at its highest, and it’s only a matter of time before one falls on your head. Good night and good luck.

📖 This article is an excerpt from my book Welcome to Uncertainty !

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