Incerto 4-Book Bundle: Fooled by Randomness, The Black Swan, The Bed of Procrustes, Antifragile

by Nassim Nicholas Taleb

My point, I will repeat, is not that Balzac is untalented, but that he is less uniquely talented than we think.

Lucien discovers the existence of the immense cemetery inhabited by what Balzac calls “nightingales.” Lucien was told that this designation “nightingale” was given by bookstores to those works residing on the shelves in the solitary depths of their shops.

I mentioned earlier that to understand successes and analyze what caused them, we need to study the traits present in failures.

To understand success, we need to understand the traits present in failures.

Any study that explains how to become a success at something is flawed if it does not explain how to be a failure. For instance, it's easy to fail at writing books by becoming a marketer instead of a writer. Someone is sure to say writing is different than marketing and a person needs to do both. Not so much with Amazon available.

How to Become a Millionaire in Ten Steps

The graveyard of failed persons will be full of people who shared the following traits: courage, risk taking, optimism, et cetera.

People in the graveyard of failure will have the same character traits as those who have been successful What distinguishes them? Often, it is luck or opportunity. Yeah, I know, the harder a person works, the lucker they get. And that is true. Incremental success is easiest unless a Black Swah comes along to give catastrophic failure. COVID has destroyed many incremental success plans. I don't know the antidote. You can't buy insurance against every Black Swan event without going broke. Perhaps, the key is to learn flexibility to auickly adapt to new situations.

It's easy to create a cohort of investing geniuses. Start with a large cohort, and every quarter, fire the bottom 10%. Those that are left will be the best...you mean the luckiest, don't you? Investing is more about not being stupid than it is about being smart.

By the mechanism of retrospective determinism we will find the “cause”—actually, we need to see the cause.

RETROACTIVE DETERMINISM is the process of deciding on the cause after observing the effect. For instance, if there is an uptick in COVID cases, we will be quick to point at peoplel who don't wear masks, etc. If there is a downtick, we might say people are getting increased immunity because they aren't wearing masks. If it stays the same, we might say wearing masks doesn't help. Looking back, whatever happens has whatever happened as the assumed cause. In reality, the cause we choose may be completely unrelated. This is so even when we do a long-term retrospective analysis of a method. 10% of the random methods will work better than the other 90% of random methods.

A HEALTH CLUB FOR RATS

Silent evidence equals the cemetary of quiet failures. People who save 10% of their pay each year will end up rich. Look, here are 100 people who did so, and they ended up rich. "What about the cemetaries?" You ask. "What cemetaries?" "Those containing people who didn't realize they would lose their job while the market was way down. The two events are often connected." It goes on and on with "What ifs." Collectively, out of 100 "What ifs," one of them is likely to happen. Let's say they happen to 25% of the population...maybe more. How do you prevent the effects of those. Learn to live without extras that cost money. People suffer more from loss than they get excited about gain. We tend to squander our gains and even convert them to losses by adopting a more expensive lifestyle. Consider two people in the same job. Let's say moderately successful real estate agents. Both make the same amount of money. One lives in an expensive house, etc. The other lives simply, BUT engages in many inexpensive activities that make them happy. Ask someone this quesition: "What could you spend the day doing that would make you happy, but cost little or no money?" Example: Walk around downtown and take a picture of historical plaques and their buildings. Make a book of the picture etc. I mean a real book on Kindle. It doesn't need to be published. Start a hobby of making actual books instead of photo albums.

Note the following central fact: every single rat, including the strong ones, will be weaker after the radiation than before.

What doesn't kill you makes you stronger. What doesn't kill you makes you weaker. It can be either or both. One can weaken your body and strengthen your mind. "Flow" would say the result is within your control. OK, we know there are exceptions. I get that. Try to find ways to draw strength out of weakness. Because it's physically harder to exercise, I need to develop more mental discipline to exercise.

Vicious Bias

There is a vicious attribute to the bias: it can hide best when its impact is largest.

Bias can hide best when its impact is largest. For instance, five or six friends in my childhood neighborhood became lawyers. Who knew I lived on such a terrible street? What caused this? Heck if I know.

The more injurious the treatment, the larger the difference between the surviving rats and the rest, and the more fooled you will be about the strengthening effect.

Does crime pay? Newspapers report on the criminals who get caught.

We hear about criminals that get caught. Reading about them in the news shows catching criminals is the exception. We don't know the other side. Are there few people committing crimes? Or are there only a few people getting caught. Another example: People must be slowing down on I-25 because the state troopers are giving fewer tickets. Due to funding cuts, state troopers are spending less time patrolling the interstate. Fallacious conclusion: Reducing number of state troopers decreases speeding. Therefore, we should cut funding even more. Bet I could find this argument made in real life if my internet was working.

Once we seep ourselves into the notion of silent evidence, so many things around us that were previously hidden start manifesting themselves.

Once we start looking at silent evidence, it starts manifesting everywhere. People who graduate from college are more successful. The people who are successful in our business are all college graduates. That's why only college graduates are promoted to management positions. Only a college graduate would be dumb enough to see the flaw in this logic.

The lucky ones, with the feeling of having been selected by destiny, will continue gambling; the others, discouraged, will stop and will not show up in the sample.

We see what the government is doing with stimulus packages during COVID. What we don't see is what they have stopped doing. Or worse, we don't clearly see the effect giving money away without getting work in return will cause runaway inflation. If we see that, what can our response be?

Recall the confirmation fallacy: governments are great at telling you what they did, but not what they did not do.

WINNING VOTES WITH YOUR MONEY// Governments, especially socialist governments and socialists are good at winning votes with your money. Let's bring it down to your individual level.// Because of COVID-19, about 30% of the population has filed for unemployment. This is down from 3% unemployed in about 8 weeks. The actual number is higher, because many people aren't looking for jobs or are underemployed.// A so-called socialist friend who wants to teach you how to think might say, "Do you think they should pass a law that people can skip their rent payments during the stay-at-home phase?"// DANGER, DANGER, OUTRAGE TOPIC// Any answer is fraught with danger. If you say yes, they may say, "What about the poor landlord?" If you say now, they say, "Do you want people kicked out of their homes?"// Well, the socialist likely wants to appear generous with your money, not their own. If you want to trip them, say "I think the government should start a GoFundMe site so people can make voluntary contributions to pay other people's rent. How much would you personally give to such a fund?"// Oh no! Now you've done it. You've asked a socialist to be generous with their own money instead of other people's money.// When the government passes a law to help people realize they are often doing just the opposite to a counter-party. Unfunded mandates are the worst. "All businesses must provide free masks to customers."// It's coming, you know. And it will be an extra expense. Why can't customers who forget to bring a mask buy their own damn mask? No, the forgetters want to socialize their lack of responsibility. //

Bastiat goes a bit deeper. If both the positive and the negative consequences of an action fell on its author, our learning would be fast. But often an action’s positive consequences benefit only its author, since they are visible, while the negative consequences, being invisible, apply to others, with a net cost to society.

TAKE POSITIVE WITH NEGATIVE People who sponsor bills are careful to write them so only the positive consequences fall on their constituents. The negative consequences fall on others.// For instance, let's take allowing people who are transgender to use the biologically opposite rest room. Most times, if they stick to a stall, people won't care or notice. Especially if the door locks and there is room for one. I've often used a woman's room in an emergency. // However, there will be consequences that fall upon many businesses. They will need to reconstruct rest rooms to allow for mixing. // MULTIPLE TOPIC BILLS Many bills have A GOOD THING and A BAD THING. Politicians focus on the GOOD THING aspects of bills they sponsored without mentioning the BAD THINGS in the bills. They will advertise their opponents oppposed a bill with a GOOD THING, while failing to mention the bill also passed a BAD THING.//

Have the guts to consider the silent consequences when standing in front of the next snake-oil

humanitarian.

Statistics are invisible; anecdotes are salient. Likewise, the risk of a Black Swan is invisible.*

THE TEFLON-STYLE PROTECTION OF GIACOMO CASANOVA

This brings us to gravest of all manifestations of silent evidence, the illusion of stability. The bias lowers our perception of the risks we incurred in the past, particularly for those of us who were lucky to have survived them.

Your life came under a serious threat but, having survived it, you retrospectively underestimate how risky the situation actually was.

THE ILLUSION OF STABILITY// Whether I'm right or not, I've somewhat come to the conclusion that buying a house is a dumb idea. Something will happen during the next 30 years to make it a dumb idea. Job lost, roof damaged, air conditioner broken, or it plain wears out and you need to spend a bunch of money to keep it in shape.// People have the illusion of stability when they "own" a house. "Nobody can raise my rent."// True, but they can raise your taxes.// I can do anything I like with it.// True, not only can you, but you have to in order to keep it in good condition.// Thirty years pass for most people and they still have the house...and a stack of repair and upkeep bills that the neighbors don't see. They sell the house and put a couple hundred thousand in the bank and think they are rich. Unless the money goes for medical bills or another house.// Houses can make people rich as they are a forced savings program. But they come with much risk. Looking back, the risk won't seem bad for most. They still have the house. Those who lost their houses live somewhere else. People seldom talk about their failures, so you don't hear about them

It is those who survive who will tend to believe that they are indestructible; they will have a long and interesting enough experience to write books about it. Until, of course

INDESTRUCTIBLE PEOPLE Successful people bounce up one more time than they've been knocked down. Every successful person has a saying something like this. What about those who got run over by a steamroller that never bounce back? Oh, they don't write books. Not a big deal.// EVERYONE HAS HARDSHIPS// in excess of what they represent to the outside world. People present their best on social media unless they are looking for someone to share their troubles with.// For the ininitiated, it can appear everyone else is leading a problem-free life. Ask yourself, "What about their backstory?" Watch a person long enough, and you will learn they have difficulties. Maybe they really do have trouble paying their rent this month.

Consider what is generally called the resilience of New York City. For seemingly transcendental reasons, every time it gets close to the brink of disaster, the city manages to pull back and recover.

Well, this was written before COVID-19. My guess is NYC will bounce back again. WHY? Because we will only hear stories about the parts of the city that bounce back. We won't hear about the small business owner who was ruined. At least not after those stories stop attracting clicks. We are either resiliant or we disappear. Just like a weed.//

This bias causes the survivor to be an unqualified witness of the process.

When we survive, we tend to create a narrative about why we survived. This narrative will, of course, make us look good. It must be good because the character traits we highlight allowed us to survive.// What about our neighbor who had the same character traits, but the tornado hit their house and not yours?//

“I Am a Risk Taker”

which encourages us to take blind risks, unaware of the variability in the possible outcomes. We inherited the taste for uncalculated risk taking. Should we encourage such behavior?

We seem to have risk-taking genes that encourage us to take uncalculated risks. Be that one sperm that wins the race to the egg. The rest are half children that die someplace. Are those partial abortions?// Ok, that's stretching the idea, but many people start a sales career each year. Something like 80% will fail during the first year and in the process will have exhausted their savings. Want to have a better chance? Save three years of living expenses before starting a sales career. Do some people succeed sooner? Yes. They are usually both hard-working and lucky.// You won't see the failures at the headquarters motivational events. The difference between the successes and failures may be one lucky phone call. Of course, the successful person needs to make that one lucky call. Mix them in with tens of thousands of failures.//

This is exactly like someone playing Russian roulette and finding it a good idea because he survived and pocketed the money.

ALL CAREERS HAVE RISK If we think about it too long, we will wonder how we are ever alive. Thousands, maybe hundreds of thousands, maybe millions of people had to survive so our sperm could unite with our egg to form us.Whew. It's overwhelming.// In a similar manner, many things have to happen to fulfill a childhood dream of becoming a lawyer. Pick any other profession as an example. Ponder it while you pace around the house. Think of the things that could go wrong. Think of the things that must go right, but have a small chance of going right.// No matter which path you choose, there is an element of risk. You can make too little money; there is physical danger; you can work too many hours; the environment can change.// The only thing to do is put on your boots and start walking. Most of the time things turn out good enough. They seldom turn out the way they were planned.// You can improve your odds, save the lecture until after you are successful, and you can make up good reasons why you were successful. Bottom line: WE WERE LUCKY

I am

only critical of the encouragement of uninformed risk taking.

The next few chapters will show in more depth how we tend to dismiss outliers and adverse outcomes when projecting the future.

Silent evidence is not present in their theories. Evolution is a series of flukes, some good, many bad.

We tend to think evolution has already tranformed us into perfection. That's not the case. The conditions we evolved to live in no longer exist. EVOLUTION MAY ALWAYS BE BEHIND. Or, perhaps, we change our conditions to match the species we have evolved into. Natural environnment selection. More likely, we evolve into a variety and only some of that variety gets to do well in the conditions that exist. The rest of us have a harder time. The SILENT EVIDENCE EFFECT shows that most risk taking is unsuccessful. We are better off aiming for the center of the target and at least being someplace on the target.

I AM A BLACK SWAN: THE ANTHROPIC BIAS

The world has been created so that we could exist. Or we have been created so we could exist. Or, in combination, we are likely to exist. We give credit to our own skills and the skills of perfect creator for making a perfect creation. We don't recognize that a LUCKY COIN TOSSER is just a lucky coin tosser and intrinsically no different than the UNLUCKY COIN TOSSER. We beat the odds because so many were taking the risk, someone had to win. Remember, we only needed to live long enough to pass on our genes.

Some people reason that the odds of any of us being in existence are so low that our being here cannot be attributed to an accident of fate.

It is often said that the world seems to have been built to the specifications that would make our existence possible.

However, our presence in the sample completely vitiates the computation of the odds.

The one who is still kicking (by accident) will feel that, given that he cannot be so lucky, there had to be some transcendental force guiding him and supervising his destiny: “Hey, otherwise the odds would be too low to get here just by luck.”

My being here is a consequential low-probability occurrence, and I tend to forget it.

The reference point argument is

as follows: do not compute odds from the vantage point of the winning gambler (or the lucky Casanova, or the endlessly bouncing back New York City, or the invincible Carthage), but from all those who started in the cohort.

When you compute odds, look at the number of people in the cohort. There will be one lucky or one unlucky person if the cohort is big enough. You have to decide if the loss of quality of life is worth the risk taken. For instance, we can't go bankrupt buying enough insurance so we don't go bankrupt from not having insurance. You can use the same idea for the need to save a year of living expenses. Do it for the PSYCHIC ENERGY that will come from planning, and it will be easier.

The Cosmetic Because

I repeat that we are explanation-seeking animals who tend to think that everything has an identifiable cause and grab the most apparent one as the explanation.

But silent evidence masks this fact. Whenever our survival is in play, the very notion of because is severely weakened.

Now, try the weakened causality argument that I have just emphasized in this chapter: had the bubonic plague killed more people, the observers (us) would not be here to observe. So it may not necessarily be the property of diseases to spare us humans.

Whenever your survival is in play, don’t immediately look for causes and effects.

The main reason we can talk about our survival is because we survived. Those who didn't survive aren't around to talk about why they didn't survive. Maybe they knew? Who knows? Look for SILENT EVIDENCE when determining reasons for survival. How many investors out of a cohort of 100 were successful? Perhaps only a few successfully save for retirement because only a few can. The rest are silent evidence of unavoidable circumstances. Perhaps 50% (a guess) will experience a financial loss at an age they can't recover. The difference between the successful and unsuccessful investor may be one unfortunate financial disaster.