The Illusion of Certainty

Our brain hates uncertainty. Absolutely detests it. Has there been a time when you didn’t know the answer or outcome to something and thought: “I don’t care if the news is good or bad, just tell me”? The worst is not knowing. This is because the brain finds an immense amount of pleasure in planning and order.

The executive function of the brain is a planning machine. We like to plan. We plan our vacations, what we’re going to do tomorrow and what to buy at the grocery store. The planning allows us to be efficient and productive. If you have uncertainty, if you don’t know what’s going to happen, you can’t plan effectively. Even if the news is bad, the brain says, “Okay, it’s bad news. But at least I know, and I can figure out the best steps going forward.”

Uncertainty & Love

Recently, I was speaking with a friend of the family. This young woman had just broken up with her boyfriend. I went to talk to her, to help her sort through things. Her boyfriend basically asked her to go to her mom’s house and give him a few days to think about things. She had been calling him asking: “Just tell me. Are we breaking up, or is this a temporary separation? Because if we’re just going to break up, I’ll come and get my stuff right now.”

Rather than endure the uncertainty, she was actually willing to say, “Let’s just break up.” She was willing to split up to take the uncertainty out of it. The uncertainty was killing her.

Uncertainty & Forecasts

When an analyst confidently predicts what the market or interest rates are going to do, we are subconsciously influenced to believe it because that forecast provides a false sense of certainty. And if the analyst is deemed an “expert,” we are even more likely to believe. Research shows that when a person is introduced to us as an expert, our brain switches off our natural skepticism. We are inclined to take it as truth.

Here’s the problem. The experts are not good at forecasting future outcomes. Numerous studies demonstrate their predictive abilities are no better than random guessing.

  • Philip Tetlock, a professor of psychology, reviewed 28,000 prior predictions and forecasts by experts (both financial and non-financial) and found that “experts’ predictions barely beat random guesses—the statistical equivalent of a dart-throwing chimp … Ironically, the more famous the expert, the less accurate his or her predictions tended to be.”
  • In 2014, Goldman Sachs conducted a significant study to predict who would win the World Cup. As part of the study, the firm’s analysts researched more than 14,000 prior soccer matches and produced a 67-page report that included their quantitative analysis as well as their predictions. According to an analysis by the Wall Street Journal, their predictions were as accurate as random guessing. All that effort and time, yet the analyses were no better than random guesses. As with all forecasts, Goldman Sachs’ experts based their predictions on assumptions, such as that none of the players would be injured. Of course, players got hurt. A couple of key players were hurt, and that may have changed the outcome.

Wrapping it Up

This is the problem with predictions. Oftentimes forecasters assume that nothing unexpected will happen … after all, how can you predict an unexpected event? Yet life is all about unexpected occurrences. When life inevitably throws us a curveball, the outcome is often different than the prediction.


Post is an excerpt from The Emotional Investor: How Biases Influence Our Decision Making…And What We Can Do About It