Malcolm Gladwell on 'Miscalibration'

Miscalibration? What does that mean? It's not in the dictionary.

Last Wednesday Malcolm Gladwell spoke at the Arlington Theater here in Santa Barbara, and he coined this term. I sat down in my seat and expected him to speak on The Tipping Point or Outliers, but it was a both a nice surprise that Malcolm had a different subject in mind and that he was such a powerful speaker.

He shared the story wrapped up with the Battle of Chancellorsville in May of 1863 and how it relates to what has just happened with this financial crisis. He asked, "What should we have learned?" Typically when a catastrophe occurs, we seek to learn from it. If it is a car accident, you would ask, "Was there alcohol involved?" and other leading questions. We like to make sense of things. We have just and still are experiencing a catastrophe caused by smart, savvy, experienced people. Have we really extracted what caused this whole thing? These people who caused the financial crisis were not drunk. They were clear-headed and brilliant. So what happens when experts screw up? Malcolm discussed how we hate incompetence, and we do what we can to get rid of it. But, incompetent people tend to have trivial jobs and therefore make trivial mistakes. With the failure of experts, the impacts can be massive.

The Battle of Chancellorsville was at the midpoint of the Civil War, and the outcome of the war was in doubt. Robert E. Lee was known for being an "extraordinary military tactician" and was no small opponent. Lincoln hand picked the "blue of eye" and "square of jaw" Fighting Joe Hooker to lead the Yankees against the Rebels and Robert E. Lee, as Malcolm put it. (He jokes he can get away with saying this because he's Canadian.) Fighting Joe Hooker studied Lee diligently. He had twice as many men as Lee, twice the guns and ammunition, he had Lee surrounded, and Lee was 56 years old (which was relatively old back then) and in poor health. He had just about 'perfect' information about his opponent, and this caused him to become over-confident. Hooker ultimately lost the battle and did not change his course despite new information as it arrived. Despite clear advantages, the perfect battle plan, and perfect information, he lost the battle.

Malcolm discussed another example of child psychiatrists diagnosing cases. At first, they were given 25 questions with short answers. As they were given more information (and eventually entire files on these children), the new information did not make them more correct in their diagnosis, but more information did make them more confident that they were correct. They didn't get any better at diagnosing, but they thought they were better at it.

Malcolm said that that over-confidence is the "disease of knowing too much" while incompetence is "the absence of knowledge." Again, the "disease of the idiot verses the disease of the expert" is that the first disease is common. In Malcolm's words, "Idiots screw up all the time but at a low level," whereas the thought of expert failure terrifies us, because these authorities, experts, or people in high positions can really impact our lives if they make a mistake.

In the case of Wall Street, these people who failed thought they were equipped with new tools that led them to believe they had "perfect information about the marketplace" and they could predict exact levels of risk. Malcolm's position is that "perfect information always creates miscalibration" and his stance is that we also need humility from our experts. We need to be confident enough to be good, yet not so arrogant in that confidence to stop learning or wind up going through anything like this again.

I appreciate his perspective, and that's Malcolm in a nutshell...opening our minds to new thoughts and ways of looking at the world. Thanks to Malcolm Gladwell for visiting Santa Barbara!