The high degree of uncertainty surrounding the Covid-19 pandemic is one of its most frustrating qualities. How long will the pandemic last? When will normal life return? When will a vaccine be available? Not only don’t we have definitive answers, we don’t even know how to best frame these critical questions. The answers we get from the most trusted of experts feel too vague, - their explanations full of caveats and probabilities, - as they should. How can we start making sense of such an unpredictable future?
It wasn’t all that long ago that we didn’t have much use for probabilities in our daily life, - outside of weather reports, election predictions and baseball. But that’s all been changing in our complex economy and society. Probabilities have been playing an increasing role in our work and personal lives given our newfound ability to quantify just about anything. In all kinds of everyday situations, - from medical diagnoses to financial decisions, - we’ve had to learn to live and make decisions in the messy, uncertain world of probabilities.
Probabilities are inherently hard to grasp, - especially for an individual event like the weather or an election. “People understand that if they roll a die 100 times, they will get some 1’s,” wrote David Leonhardt in a 2017 NY Times column. “But when they see a probability for one event, they tend to think: Is this going to happen or not? They then effectively round to 0 or to 100 percent… And when the unlikely happens, people scream: The probabilities were wrong!”
He cites as examples the 2016 elections, where most everyone expected Hilary Clinton to win because the latest polls had her probability of winning at between 72% and 85%, and the 2017 Super Bowl, where in the last minutes of the game the Atlanta Falcons had a 99% probability of winning over the New England Patriots.
Why is it so hard to deal with probabilities in everyday life? “I think part of the answer lies with Kahneman’s insight: Human beings need a story,” noted Leonhardt referring to Princeton Professor Emeritus Daniel Kahneman, the recipient of the 2002 Nobel Prize in Economics “for having integrated insights from psychological research into economic science, especially concerning human judgment and decision-making under uncertainty.”
In the 1970s, the prevailing view among social scientists was that people are generally rational and in control of the way they think and make decisions unless powerful emotions like fear, hatred or love distorted their judgement. But in a series of experiments, Kahneman and Amos Tversky, - his long time collaborator who died in 1996, - demonstrated that human behavior often deviated from the predictions of the previous rational models, and that these deviations were due to the biases and mental shortcuts or heuristics that we use for making everyday decisions, rather than to our emotional state.
In his excellent 2011 bestseller Thinking, Fast and Slow, Kahneman explained that our mind is composed of two very different systems of thinking, System 1 and System 2. System 1 is the intuitive, fast and emotional part of the mind. Thoughts come automatically and very quickly to System 1, without us doing anything to make them happen. System 2, on the other hand, is the slower, logical, more deliberate part of the mind. It’s where we evaluate and choose between multiple options, because only System 2 can think of multiple things at once and shift its attention between them.
System 1 typically works by developing a coherent story based on the observations and facts at its disposal. This helps us deal efficiently with the myriads of simple situations we encounter in everyday life. The intuitive System 1 is actually more influential in our decisions, choices and judgements than we generally realize. But, while enabling us to act quickly, it’s prone to mistakes, especially when operating outside our areas of expertise. System 1 tends to be overconfident, creating the impression that we live in a world that’s more coherent and simpler than the actual real world. It suppresses complexity and information that might contradict its coherent story, unless System 2 intervenes because it realizes that something doesn’t quite feel right.
Making sense of probabilities, numbers and graphs requires us to engage System 2, which, - for most everyone, - takes quite a bit of focus, time and energy. Thus, most people will try to evaluate the information using a System 1 simple story: who will win the election? who will win the football game?; will it rain this afternoon?
This is not surprising. Storytelling has played a central role in human communications since times immemorial. Oral narratives were used by ancient cultures to pass along their traditions, beliefs and learning from generation to generation. Over the centuries, the nature of storytelling has significantly evolved with the advent of writing and the emergence of new technologies that enabled stories to be embodied in a variety of media, including books, films, and TV. Everything else being equal, it’s our preferred way of absorbing complex information.
Military planners, intelligence agencies, and government policy makers have long been using scenario planning, a kind of storytelling, to help them understand and get ready for dealing with unpredictable futures. The object of scenario planning is to assemble all known facts, trends, and other information and use them to create a number of alternative stories rich in detail, typically 3 or 4, about plausible future outcomes along with the development paths and key events that led to such outcomes. Altogether, the scenarios should span the overall scope of possible futures. The actual future will likely include events from each scenario.
For example, every four years since 1997, the US National Intelligence Council has been publishing a Global Trends report on the key trends that will shape the world over the following twenty years. The latest Global Trends report, was released in January of 2017. The report explored in detail seven key trends that will likely transform the global landscape through 2035. It then illustrates how the future might play out through three different scenarios or short stories, - Islands, Orbits, and Communities, - each embodying the key issues, trends, decisions and uncertainties that are likely to define the next 20 years.
In the business world, scenario planning has become a valuable tool for strategic thinking over the mid- to long-term planning horizon. Alternative technology and market environments can be described in a few discrete scenarios, while organizing the richness and range of possibilities into narratives that are easier to grasp and use than great volumes of data.
Finally, let’s return to the questions in all our minds. When will the economy, society and our personal lives return to normal? What will these new normals look like in a post-Covid-19 world? Scenario planning may well be one of the best ways to help us deal with such an uncertain future.
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