3 docs tagged with "risk"

Availability Heuristic — one of the most studied cognitive biases in psychology and behavioural economics, with documented effects across professional, financial, and personal decision-making domains.

The Ludic Fallacy is the error of applying the simplified, well-defined rules of games and models to the complex, messy, and unpredictable real world. Coined by Nassim Nicholas Taleb in "The Black Swan" (2007), this mental model explains why risk models fail during financial crises, why chess masters struggle with real-life decisions, and why academic theories often break down in practice. Understanding the Ludic Fallacy allows decision-makers to recognize when they're confusing the map with the territory and to design strategies that account for true uncertainty rather than modeled risk.

The Narrative Fallacy is a cognitive bias where individuals construct flawed, oversimplified stories to explain a series of complex or random facts. Popularized by Nassim Nicholas Taleb in 2007, this mental model explains our biological need to "compress" information into causal chains, leading us to underestimate the role of luck and overestimate our ability to predict the future. Understanding the Narrative Fallacy allows investors, historians, and leaders to avoid the "illusion of understanding" and build more robust strategies that account for the chaos of reality.