Ludic Fallacy
Treating real-world uncertainty as if it were a casino game with known odds; models with clean probabilities feel rigorous and miss the risks that were never in the model.
An everyday example
A 'one-in-ten-thousand-year' event that happens twice in a decade because the model assumed a distribution reality did not follow.
What it can cost you
False confidence from formal models; being sold precision about the unknowable.
Warning signs
- The odds feel like a casino's.
- Nobody has mentioned what the model leaves out.
One thing to do
Ask what the model assumes about the world and what happens if that assumption is wrong; size your exposure to the model being wrong, not just to the model's output.
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