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

by Nassim Nicholas Taleb

The Tyranny of the Accident

Mediocristan is where we must endure the tyranny of the collective, the routine, the obvious, and the predicted;

Extremistan is where we are subjected to the tyranny of the singular, the accidental, the unseen, and the unpredicted.

If you are subject to Extremistan-based speculation, however, you can gain or lose your fortune in a single minute.

Extremistan does not always imply Black Swans.

You can still experience severe Black Swans in Mediocristan, though not easily. How? You may forget that something is random, think that it is deterministic, then have a surprise.

It is worth mentioning here that one of the mistakes people make in the interpretation of the Black Swan idea is that they believe that Black Swans are more frequent than in our imagination. Not quite the point. Black Swans are more consequential, not necessarily more frequent. There are actually fewer remote events, but they are more and more extreme in their impact, which confuses people, as they tend to write them off more easily.

Chapter Four ONE THOUSAND AND ONE DAYS, OR HOW NOT TO BE A SUCKER

HOW TO LEARN FROM THE TURKEY

Problem of Induction or Problem of Inductive Knowledge (capitalized for its seriousness)—certainly the mother of all problems in life. How can we logically go from specific instances to reach general conclusions?

The rest of this chapter will outline the Black Swan problem in its original form: How can we know the future, given knowledge of the past; or, more generally, how can we figure out properties of the (infinite) unknown based on the (finite) known?

The turkey problem can be generalized to any situation where the same hand that feeds you can be the one that wrings your neck.

Let us go one step further and consider induction’s most worrisome aspect: learning backward. Consider that the turkey’s experience may have, rather than no value, a negative value.

Something has worked in the past, until—well, it unexpectedly no longer does, and what we have learned from the past turns out to be at best irrelevant or false, at worst viciously misleading.

You observe a hypothetical variable for one thousand days. It could be anything (with a few mild transformations): book sales, blood pressure, crimes, your personal income, a given stock, the interest on a loan, or Sunday attendance at a specific Greek Orthodox church. You subsequently derive solely from past data a few conclusions concerning the properties of the pattern with projections for the next thousand, even five thousand, days.

After the Napoleonic conflicts, the world had experienced a period of peace that would lead any observer to believe in the disappearance of severely destructive conflicts.

Mistaking a naïve observation of the past as something definitive or representative of the future is the one and only cause of our inability to understand the Black Swan.

But in all my experience, I have never been in any accident… of any sort worth speaking about. I have seen but one vessel in distress in all my years at sea. I never saw a wreck and never have been wrecked nor was I ever in any predicament that threatened to end in disaster of any sort. E. J. Smith, 1907, Captain, RMS Titanic

Trained to Be Dull

In the summer of 1982, large American banks lost close to all their past earnings (cumulatively), about everything they ever made in the history of American banking—everything.

They are not conservative; just phenomenally skilled at self-deception by burying the possibility of a large, devastating loss under the rug.

The Federal Reserve bank protected them at our expense: when “conservative” bankers make profits, they get the benefits; when they are hurt, we pay the costs.

It was obvious that their profits were simply cash borrowed from destiny with some random payback time. I have no problem with risk taking, just please, please, do not call yourself conservative and act superior to other businesses who are not as vulnerable to Black Swans.

A Black Swan Is Relative to Knowledge

For the butcher, it is not, since its occurrence is not unexpected. So you can see here that the Black Swan is a sucker’s problem. In other words, it occurs relative to your expectation.

Note that these events do not have to be instantaneous surprises.

the computer that brought consequential effects on society without its invasion of our lives being noticeable from day to day.

Even though I've been on social media since 1997, only recently did I notice how much the computer has affected how people think. Let's call it homogenation of ignorance.

but historical changes and technological implementations are Black Swans that can take decades. In general, positive Black Swans take time to show their effect while negative ones happen very quickly—it

A BRIEF HISTORY OF THE BLACK SWAN PROBLEM

People imagine us skeptics and empiricists to be morose, paranoid, and tortured in our private lives, which may be the exact opposite of what history (and my private experience) reports.

Hume is the kind of thinker who is sometimes read by the person mentioning his work.

Sextus the (Alas) Empirical

He belonged to a school of medicine called “empirical,” since its practitioners doubted theories and causality and relied on past experience as guidance in their treatment, though not putting much trust in it.

Pyrrhonian skeptics who were after some form of intellectual therapy resulting from the suspension of belief. Do you face the possibility of an adverse event? Don’t worry. Who knows, it may turn out to be good for you. Doubting the consequences of an outcome will allow you to remain imperturbable.

but taught themselves to systematically doubt everything, and thus attain a level of serenity.

He was a doer, hence classical scholars don’t say nice things about him. The methods of empirical medicine, relying on seemingly purposeless trial and error, will be central to my ideas on planning and prediction, on how to benefit from the Black Swan.

That awareness of a problem does not mean much—particularly when you have special interests and self-serving institutions in play.

His name for a class of dogmatic scholars was ghabi, literally “the imbeciles,”

The West embraced Averroës’s rationalism, built upon Aristotle’s, which survived through Aquinas and the Jewish philosophers who called themselves

Averroan for a long time.

Belief in the importance of the Black Swan problem, worries about induction, and skepticism can make some religious arguments more appealing, though in stripped-down, anticlerical, theistic form.

Philosophical Treatise on the Weaknesses of the Human Mind in 1690, a remarkable book that tears through dogmas and questions human perception.

Huet presents

arguments against causality that are quite potent—he states, for instance, that any event can have an...

Huet, who lived into his nineties, had a servant follow him with a book to read aloud to him during meals and breaks and thus avoid lost time.

Let me insist that erudition is important to me. It signals genuine intellectual curiosity. It accompanies an open mind and the desire to probe the ideas of others. Above all, an erudite can be dissatisfied with his own knowledge, and such dissatisfaction is a wonderful shield against Platonicity, the simplifications of the five-minute manager, or the philistinism of the overspecialized scholar. Indeed, scholarship without erudition can lead to disasters.

I Don’t Want to Be...

but by a practitioner whose principal aim is to not be a sucker in things that matter, period.

In a way, all I care about is making a decision without being the turkey.

Many middlebrows have asked me over the past twenty years, “How do you, Taleb, cross the street given your extreme risk consciousness?”