On the surface, then, thinking that you could win Mr. Buffett’s $1 billion is pure lunacy.
However, the types of wildly unpredictable and seemingly random events required for someone to fill out an NCAA bracket correctly are actually relatively common. They even have a name – black swans. The whole mortgage crisis was blamed on a black swan scenario. 9/11 was a black swan event. The chance that a commercial airliner goes missing over the Pacific is also a black swan event.
As Nassim Nicholas Taleb famously outlined in The Black Swan: The Impact of the Highly Improbable, there are three primary characteristics of a black swan event: they are unpredictable, they carry a massive impact when they occur, and after the fact, it’s possible to concoct a rational explanation that makes them appear more predictable and less random. The last point is especially relevant — our minds are remarkably good at creating stories of why it makes sense that a No. 15 seed managed to knock off the No. 2 seed in our brackets, or why our favorite Cinderella made it to the Final Four.
Black swans are also important for innovators in the technology world. Taleb highlights two main areas of interest for innovators – scientific discoveries and venture capital investments. Both rely on serendipity, chance and an inconceivable chain of unknown events (“unknown unknowns”) that often link events in one field with a completely unrelated one. Venture capitalists inherently recognize this – their field of endeavor is surely one of the only in the modern world where you can be wrong 80 percent of the time and still make hundreds of millions of dollars when one of your big bets finally pays off.
We’re so used to hearing about small Internet or mobile startups that employ just a handful of people being acquired for hundreds of millions – or even billions – of dollars, that it actually seems probable to us these days. (In the same way, the probability of a commercial jet airliner crashing into a skyscraper now strikes us as being much higher than it did before 2001.) Yet, the rise of a company to a billion-dollar valuation such as Facebook or Instagram or SnapChat or WhatsApp is also, in its way, a black swan event. It’s completely unpredictable, almost inconceivable. Even the rise of Google, according to Taleb, deserves to be thought of as a black swan event.
At a time when we read daily about the rise of big data and how the world is becoming more and more rational, it’s easy to lose sight of the fact that truly breakthrough innovation occurs by pursuing the random, the unknown and the inconceivable rather than by using mathematics and algorithms to find the proverbial needle in the haystack. It’s about fitting together the little random bits of information in everyday life and then making sense of them that can lead to disruptive ideas.
As a result, innovators should find ways to introduce a bit of randomness into their lives — grabbing a coffee at a new café, going to a party with a new group of friends in a new part of town, picking up a new magazine on the bookshelf — in the hope that they’ll trigger new connections, new ideas or new perspectives. As Taleb notes, each of these random events is equivalent to picking up a free lottery ticket in life — you may lose a little in the short-term, but end up gaining a lot from potential payoffs.
Sir Francis Bacon once noted that the most important scientific advances are the least predicted ones, the ones “lying out of the path of the imagination.” He surely would have argued that you can take all of your data — and all of your bracketology — and throw it out the window. True innovations will not happen by relentlessly crunching the data and making the logical, rational picks. The real innovations happen as a result of black swan thinking. Somewhere out there, innovators are creating new technologies with an inconceivable future impact on humanity — just like there’s some No. 16 seed out there just waiting to take out a No. 1 seed. As a result, a real innovator looks at the odds and doesn’t see the impossible — he or she examines the odds and says, “We’re due.”