Latticework of Mental Models: Ludic Fallacy

On October 23, 2010, Francis Crippen, an American national, drowned while swimming in the sea near the shores of United Arab Emirates. He was only 26 years old.

Francis’ story shouldn’t strike you as very unusual. Thousands die every year because of drowning. In fact, your best guess would be that it’s such a non-event that it wouldn’t have found even a single mention in any of the prominent newspapers. However, what I haven’t told you about Francis is that he was no ordinary swimmer.

All three of Crippen’s sisters were competitive swimmers. Being inspired by his sister Maddy, Crippen started swimming at the age of six. Maddy was a 2000 Olympian in the 400 individual medley. Crippen’s other sister Claire was an Olympic Trials qualifier. Teresa Crippen, Fran’s third sister was a member of U.S. national swimming team. Francis himself was a six-time US National Champion and won several international medals.

This is the account of the events that followed on that fateful day.

Crippen died while swimming the last race of FINA’s 2010 10K series in Fujairah, United Arab Emirates. Crippen’s absence at the finish was reportedly first noticed by fellow US swimmer Alex Meyer. After searching for Crippen and not finding him, Meyer and other swimmers returned to the water to try to locate Crippen. Two hours after the finish of the men’s race, and after 90 minutes of searching by other swimmers, Crippen’s body was found underwater by deep-sea divers near the race course’s final buoy about 500 yards from shore. Crippen was rushed to the local hospital, where he was pronounced dead, though it was suspected he died at the scene.(Source: Wikipedia)

So how did such an accomplished and experienced swimmer drown? Given that you’re reading a post on mental models, it shouldn’t be a surprise that there’s a mental model to explain this.

For most of his career i.e. until 2006, Crippen was a pool swimmer. That means he was accustomed to competing in a controlled environment of a swimming pool. A swimming pool is a sterilised version of real world water bodies.Unlike water in oceans and rivers, the pool water is quite calm, there are no underwater currents, no threat of dangerous sea creatures, and no temperature variation. Crippen probably forgot this key distinction.

This tendency, where the assumption is that man made things (including the pool swimming) are good approximations for real-life situations (swimming in the sea), is called ‘Ludic Fallacy’. The term was coined by Nassim Taleb in his book The Black Swan. Taleb explains the fallacy as –

The attributes of the uncertainty we face in real life have little in connection to the sterilised ones we encounter in exams and games.

The adjective ludic originates from the Latin noun ludus, meaning “play, game, sport, pastime.”

In his book, Taleb describes an interesting thought experiment which illustrates the idea of Ludic Fallacy.

Imagine two people. The first one is Dr. John who is regarded as a man of science and logical thinking. The other man is Fat Tony who isn’t educated much in terms of having traditional academic qualifications but he’s a successful stock trader and has to deal with risk and uncertainty in his profession. The following conversation between Fat Tony, Dr. John and Taleb gave me one of those Aha! moments.

Taleb: Assume that a coin is fair, i.e., has an equal probability of coming up heads or tails when flipped. I flip it ninety-nine times and get heads each time. What are the odds of my getting tails on my next throw?

Dr. John: Trivial question. One-half, of course, since you are assuming 50 percent odds for each and independence between draws.

Fat Tony: I’d say no more than 1 percent, of course.

Taleb: Why so? I gave you the initial assumption of a fair coin, meaning that it was 50 percent either way.

Fat Tony: You’re either full of crap or a pure sucker to buy that “50 percent” business. The coin gotta be loaded. It can’t be a fair game.

In short, it is far more likely that your assumptions about the fairness are wrong than the coin delivering ninety-nine heads in ninety-nine throws. The real world problems don’t follow the precise rules of probability like a textbook problem of “flipping a coin” does.

Extending the argument of Ludic Fallacy one can argue that a person who is a grandmaster in chess, a game of strategy, isn’t necessarily a good strategist when dealing with non-chess situations (like war or business negotiations). Taleb’s partner, Mark Spitznagel, explains –

…organized competitive fighting trains the athlete to focus on the game and, in order not to dissipate his concentration, to ignore the possibility of what is not specifically allowed by the rules, such as kicks to the groin, a surprise knife, et cetera. So those who win gold medal might be precisely those who will be most vulnerable in real life.

That’s what probably happened with Crippen too. Having practiced extensively in the pool, he became more vulnerable to hazards of open water swimming. Although he had been practicing in open water for few years before the fatal incident, he never anticipated the extreme environment that waters at Fujairah could throw at him.

The investigators later found that the sea water on that day was unusually warm (30 °C). In fact, many other athletes competing in the same competition were later hospitalised because of overexposure to heat. It was concluded that Crippen may have died of a “cardiac abnormality” and “uncontrolled exercise-induced asthma in unfavourable race environmental conditions.

Well, that’s a polite way of declaring the human helplessness in front of Mother Nature’s mood swings.

In Business

A professional gambler may be very good at assessing the risks but even he’s won’t be able to make an intelligent bet when it comes to betting on uncertain outcomes of real-world business deals. Taleb writes –

My idea is that gambling was sterilised and domesticated uncertainty. In the casino you know the rules, you can calculate odds, and the type of uncertainty we encounter there…You cannot expect the casino to pay out a million times your bet, or to change the rules abruptly on you during the game – there are never days in which “36 black” is designed to pop up 95 percent of the time…[But] In real life you don’t know the odds; you need to discover them, and the sources of uncertainty are not defined.

Some people justify playing the lottery, reasoning that one has a very high upside and small downside (few bucks for the lottery ticket). That’s an extension of Ludic Fallacy. The scalability of real-life payoffs compared to lottery ones makes the payoff unlimited or of unknown limit, argues Taleb, “The lottery tickets have known rules and laboratory-style well-presented possibilities.”

A successful businessman is one who is comfortable with uncertainty and isn’t too attached to the complex mathematical risk models peddled by suit-tie wearing consultants.

In Investing

The stock market is often compared to a casino gambling. This analogy is reasonable except that stock markets are riskier than casinos. A casino, as we have seen, is a closed system in which you can pre-calculate the odds and the rules do not change halfway through your hand of blackjack. The number of black and red spaces on the roulette wheel don’t change randomly with every spin. But in share market, all of these things can happen.

Although the stock market is a man made game, it’s an extremely complex entity and doesn’t resemble a roll of a dice. It may look like an artificial setup but it’s not. It moves based on the aggregate behaviour and interaction of millions of individuals called investors. Most of these investors act according to the SEBI’s rule book but you can never have complete control over the intentions and actions of humans.

It’s easy to identify a cheater in a game of chess and disqualify him but isolating an offender and containing the ripple effects of his actions in a stock market isn’t so easy. Which means no matter how rigorous your calculations are about the company’s financial health and valuation, you can never put a number on a management’s intentions and integrity. Attempting to do so is futile.

All the formulae (DCF, ratio analysis etc.) are useful indicators but trusting them blindly is akin to practicing in the pool. Investing in stocks is more like swimming in the open water where the adversity can hit you from any direction. The idea is to swim in familiar waters i.e., staying inside your circle of competence and look for/invest in businesses that you can understand.

Similarly, people who try to model the share market movement using complex algorithms which are derived based on historical price patterns forget the truly complex nature of markets.

Conclusion

As for Crippen’s death is concerned, members of the swimming community and overall Olympic community tightened the regulations for increased safety. Organizers of an open water swimming have reconsidered the timing of the race to ensure that the exposure to heat for the swimmer doesn’t exceed a certain limit. They recommended that the water temperature shouldn’t be more than 31.0 °C, or the combined air and water temperature should be below 63.0 °C.

Alas, they are unaware of Ludic fallacy. Irrespective of what safety regulations are passed, we can never make the ocean as risk-free as an Olympic-sized swimming pool. The point is not to avoid competing in open water swimming competition. It’s about acknowledging that an ocean is not a bigger version of a swimming pool. If one decides to jump into the sea he or she should know that years of swimming pool practice isn’t going to cut the mustard.

In my college, I once competed in a swimathon event and swam for 9 straight hours in a pool. For a long time after that, my lizard brain harboured the ludicrous thought that I was ready to jump into the sea and swim along the Marine Drive. Thank God I never acted on that thought else you wouldn’t be reading this post today.

Take care and keep learning.