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

by Nassim Nicholas Taleb

Those who talk about books as commodities are inauthentic, just as those who collect acquaintances can be superficial in their friendships.

One of the attributes of a Black Swan is an asymmetry in consequences—either positive or negative. For Drogo the consequences were thirty-five years spent waiting in the antechamber of hope for just a few randomly distributed hours of glory—which he ended up missing.

People often accept that a financial strategy with a small chance of success is not necessarily a bad one as long as the success is large enough to justify

The problem with business people, Nero realized, is that if you act like a loser they will treat you as a loser—you set the yardstick yourself. There is no absolute measure of good or bad. It is not what you are telling people, it is how you are saying

We call this the problem of silent evidence. The idea is simple, yet potent and universal. While most thinkers try to put to shame those who came before them, Cicero puts to shame almost all empirical thinkers who came after him, until very recently.

We shall call this distortion a bias, i.e., the difference between what you see and what is there. By bias I mean a systematic error consistently showing a more positive, or negative, effect from the phenomenon,

As for journalists, fuhgedaboudit! They are industrial producers of the distortion.

In addition, our representation of the standard criminal might be based on the properties of those less intelligent ones who were caught. Once we seep ourselves into the notion of silent evidence, so many things around us that were previously hidden start manifesting themselves. Having spent a couple of decades in this mind-set, I am convinced (but cannot prove) that training and education can help us avoid its pitfalls.

We see the obvious and visible consequences, not the invisible and less obvious ones.

Let us apply this reasoning to September 11, 2001. Around twenty-five hundred people were directly killed by bin Laden’s group in the Twin Towers of the World Trade Center. Their families benefited from the support of all manner of agencies and charities, as they should. But, according to researchers, during the remaining three months of the year, close to one thousand people died as silent victims of the terrorists. How? Those who were afraid of flying and switched to driving ran an increased risk of death. There was evidence of an increase of casualties on the road during that period; the road is considerably more lethal than the skies.

life saved is a statistic; a person hurt is an anecdote. Statistics are invisible; anecdotes are salient. Likewise, the risk of a Black Swan is invisible.

This bias causes the survivor to be an unqualified witness of the process. Unsettling? The fact that you survived is a condition that may weaken your interpretation of the properties of the survival, including the shallow notion of “cause.”

Silent evidence is not present in their theories. Evolution is a series of flukes, some good, many bad. You only see the good. But, in the short term, it is not obvious which traits are really good for you, particularly if you are in the Black Swan–generating environment of Extremistan.

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

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. Consider once again the example of the gambler.

Note here that I am not saying causes do not exist; do not use this argument to avoid trying to learn from history. All I am saying is that it is not so simple; be suspicious of the “because” and handle it with care—particularly in situations where you suspect silent evidence.

Dr. John: Trivial question. One half, of course, since you are assuming 50 percent odds for each and independence between draws. NNT: What do you say, Tony? Fat Tony: I’d say no more than 1 percent, of course. NNT: Why so? I gave you the initial assumption of a fair coin, meaning that it was 50 percent either way. Fat Tony: You are either full of crap or a pure sucker to buy that “50 pehcent” business. The coin gotta be loaded. It can’t be a fair game. (Translation: It is far more likely that your assumptions about the fairness are wrong than the coin delivering ninety-nine heads in

just as we tend to underestimate the role of luck in life in general, we tend to overestimate it in games of chance.

Conclusion: A back-of-the-envelope calculation shows that the dollar value of these Black Swans, the off-model hits and potential hits I’ve just outlined, swamp the on-model risks by a factor of close to 1,000 to 1. The casino spent hundreds of millions of dollars on gambling theory and high-tech surveillance while the bulk of their risks came from outside their models. All this, and yet the rest of the world still learns about uncertainty and probability from gambling examples.

the cosmetic and the Platonic rise naturally to the surface.

We love the tangible, the confirmation, the palpable, the real, the visible, the concrete, the known, the seen, the vivid, the visual, the social, the embedded, the emotionally laden, the salient, the stereotypical, the moving, the theatrical, the romanced, the cosmetic, the official, the scholarly-sounding verbiage (b******t), the pompous Gaussian economist, the mathematicized crap, the pomp, the Académie Française, Harvard Business School, the Nobel Prize, dark business suits with white shirts and Ferragamo ties, the moving discourse, and the lurid. Most of all we favor the narrated. Alas, we are not manufactured, in our current edition of the human race, to understand abstract matters—we need context. Randomness and uncertainty are abstractions.

I propose that if you want a simple step to a higher form of life, as distant from the animal as you can get, then you may have to denarrate, that is, shut down the television set, minimize time spent reading newspapers, ignore the blogs. Train your reasoning abilities to control your decisions; nudge System 1 (the heuristic or experiential system) out of the important ones. Train yourself to spot the difference between the sensational and the empirical. This insulation from the toxicity of the world will have an additional benefit: it will improve your well-being. Also, bear in mind how shallow we are with probability, the mother of all abstract notions. You do not have to do much more in order to gain a deeper understanding of things around you. Above all, learn to avoid “tunneling.”

the big problem of humankind: we are simply not wise enough to be trusted with knowledge.

Epistemic arrogance bears a double effect: we overestimate what we know, and underestimate uncertainty, by compressing the range of possible uncertain states (i.e., by reducing the space of the unknown).

When you are employed, hence dependent on other people’s judgment, looking busy can help you claim responsibility for the results in a random environment.

Show two groups of people a blurry image of a fire hydrant, blurry enough for them not to recognize what

I will separate the two cases as follows. The mild case: arrogance in the presence of (some) competence, and the severe case: arrogance mixed with incompetence (the empty suit). There are some professions in which you know more than the experts, who are, alas, people for whose opinions you are paying—instead of them paying you to listen to them. Which ones?

Experts who tend to be experts: livestock judges, astronomers, test pilots, soil judges, chess masters, physicists, mathematicians (when they deal with mathematical problems, not empirical ones), accountants, grain inspectors, photo interpreters, insurance analysts (dealing with bell curve–style statistics).

Experts who tend to be … not experts: stockbrokers, clinical psychologists, psychiatrists, college admissions officers, court judges, councilors, personnel selectors, intelligence analysts (the CIA’s record, in spite of its costs, is pitiful), unless one takes into account some great dose of invisible prevention. I would add these results from my own examination of the literature: economists, financial forecasters, finance professors, political scientists, “risk experts,” Bank for International Settlements staff, august members of the International Association of Financial Engineers, and personal financial advisers.

Simply, things that move, and therefore require knowledge, do not usually have experts, while things that don’t move seem to have some experts. In other words, professions that deal with the future and base their...

You cannot ignore self-delusion. The problem with experts is that they do not know what they do not know. Lack of knowledge and delusion about the quality of your knowledge come together—the same process that makes you know less also makes you satisfied with your knowledge.

Our predictors may be good at predicting the ordinary, but not the irregular, and this is where they ultimately fail.

We humans are the victims of an asymmetry in the perception of random events. We attribute our successes to our skills, and our failures to external events outside our control, namely to randomness.

I know that history is going to be dominated by an improbable event, I just don’t know what that event will be.

the planning problem exists even where there is no incentive to underestimate the duration (or the costs) of the task.

There is also the nerd effect, which stems from the mental elimination of off-model risks, or focusing on what you know. You view the world from within a model.

We use reference points in our heads, say sales projections, and start building beliefs around them because less mental effort is needed to compare an idea to a reference point than to evaluate it in the absolute

This subtle but extremely consequential property of scalable randomness is unusually counterintuitive. We misunderstand the logic of large deviations from the norm.

The policies we need to make decisions on should depend far more on the range of possible outcomes than on the expected final number.

The second fallacy lies in failing to take into account forecast degradation as the projected period lengthens.

the worst case is far more consequential than the forecast itself. This is particularly true if the bad scenario is not acceptable. Yet the current phraseology makes no allowance for that. None.

People who are trapped in their jobs who forecast simply because “that’s my job,” knowing pretty well that their forecast is ineffectual, are not what I would call ethical. What they do is no different from repeating lies simply because “it’s my job.”

Anyone who causes harm by forecasting should be treated as either a fool or a liar. Some forecasters cause more damage to society than criminals. Please, don’t drive a school bus blindfolded.

the Black Swan has three attributes: unpredictability, consequences, and retrospective explainability.

We’ve seen that a) we tend to both tunnel and think “narrowly” (epistemic arrogance), and b) our prediction record is highly overestimated—many people who think they can predict actually can’t.

Sir Francis Bacon commented that the most important advances are the least predictable ones, those “lying out of the path of the imagination.” Bacon

Thomas Watson, the founder of IBM, once predicted that there would be no need for more than just a handful of computers.

We build toys. Some of those toys change the world.

after. Journalists can teach us how to not learn.

Popper’s central argument is that in order to predict historical events you need to predict technological innovation, itself fundamentally unpredictable.