How'd We Miss That?

The excerpt below is from a book, cited underneath, that is a collection of research studies that were not then concerned with the current popularity of Behavioral Economics. The book is the seed research of that now well regarded topic, and Daniel Kahneman is the father of subject. It has also been further researched by Richard Thaler PhD, among others.
The excerpt addresses, not specifically, but by implication, how we missed the market crashes and how we overweight some scenarios versus other, equally probable ones.

In any plan, the cumulative probability of at least one fatal error could be overwhelmingly high even when the individual cause of failure is negligible.
Plans fail because of ‘surprises;’ occasions on which the unexpected ‘uphill’ change occurs.
The simulation heuristic, which is biased in favor of ‘downhill’ changes,
is therefore associated with a risk of large systematic errors.
In evaluating a scenario, alterations on ‘what could have been done differently’ are many times introduced.
These can be classified as either:
Uphill: a change that introduces unlikely occurrences or surprises
Downhill: a change that removes an unlikely occurrence or surprise
Horizontal: one arbitrary value replaces another in the scenario,
neither arbitrary value is more likely, or less likely
-people are much more likely to undo a scenario with downhill changes than uphill changes…
horizontal changes are almost nonexistent.
Think of a cross country skier. It is easier to ski down than up, the psychological distance from peak to valley is shorter than from valley to peak.
Thus, mental simulations invariably have a preference for downhill variations.
Kahneman and Tversky, Judgment Under Uncertainty

I will explore the topic further in future posts.