Picture this: you’re watching a game of Russian roulette. The first five people pull the trigger and draw blanks. Handing the revolver to the final participant, the previous player reassures him, “No need to worry. We all pulled the trigger, and we’re fine!”

Now, anyone who understands the rules of the game knows that the last player is not fine. In fact, we know with one-hundred-percent certainty that said player is going to meet a very unfortunate end. But why would the other participant suggest that he has nothing to worry about? As exaggerated as this example may seem, this type of reasoning pervades everyday decision making.

How many times have you pointed out a friend or colleague’s risky behavior to the response of “What are you talking about? Everything worked out fine.” This reasoning often rears its head in the aftermath of questionable decisions, such as swearing at the principal or doing a cannonball off the roof (“Look, see? The bleeding stopped all by itself.”). Called inductive reasoning, the logic works by superimposing the past onto the future. One past outcome automatically becomes all future outcomes, disregarding the possibility of different results. As silly as it sounds, we actually use inductive reasoning on a daily basis. How do we know the sun will rise tomorrow? Well, it always has, so we just assume the rules of physics will remain unchanged. Even so, this thought process can lead to rather peculiar conclusions.

In his 2007 bestseller, The Black Swan, philosopher, mathematician, and financier Nassim Taleb details some of the dangers of inductive reasoning. He centers on the famous example of the black swan. Imagine someone who has lived her entire life in England. At the pond near her house live white swans. On the lake in the town over live white swans. She travels the countryside, and in all parts of England the swans she meets are white. Now an old lady, she reasons that all swans must be white. But this is incorrect: there are black swans in Australia. (A favorite example of mine is that of the Thanksgiving turkey—every day of its life it assumes that since its owner feeds it and shelters it, he wants it to be happy. This way of life continues unabated until the fourth Thursday of November, when the turkey ends up on a dinner table.)

Taleb applies this reasoning to many different scenarios, but in particular to financiers and Wall Street. He warns that many financial practices rest on shaky foundations and that catastrophes are not as uncommon as people like to believe. Twelve months after he published his book, the global financial system collapsed, in large part because the assumption that housing prices would continue to rise forever proved untrue.

All this is not to say inductive reasoning should be avoided at all costs. Given a large enough sample size, it can provide valuable insight into the inner workings and probabilities of an event. However, it is important to recognize its shortcomings and allow for unforeseen results. A good rule of thumb is to look at the bigger picture—especially when playing Russian roulette.

So what about you guys? Have you noticed people using inductive reasoning like this? It comes up more more often than you would think! Share your thoughts in the comments section below! As always, please like, share, or reblog this post if you enjoy it. Be sure to check me out on Twitter and Facebook as well. Thanks for reading! Don’t forget to subscribe for new content every Wednesday! IT’S FREE!

Click here for Saturday’s post: Why I’m framing my college rejection letters!

Other related articles:

The World’s Saddest Internet Arguing Techniques 2010 Edition (Cracked)

Nassim Taleb: Wall Street Oracle (BigThink)

Bet He’s Ruffled a Few Feathers…Black Swan Stands Out After Gatecrashing Group of 600 White Ones at Ancient Swannery (Dailymail.co.uk)

Confessions of a Nerd

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Comment question of the week

What’s the best (or worst?) Black Swan argument you’ve heard? A cab driver once told me that since he had never crashed while texting at 85mph it was perfectly safe!