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

by Nassim Nicholas Taleb

law of iterated expectations, which I outline here in its strong form: if I expect to expect something at some date in the future, then I already expect that something at present.

business meeting, in which well-fed, but sedentary, men voluntarily restrict their blood circulation with an expensive device called a necktie.

apocryphal story from 1899 when the head of the U.S. patent office resigned because he deemed that there was nothing left to discover—except that on that day the resignation would be

I’ll summarize my argument here: Prediction requires knowing about technologies that will be discovered in the future. But that very knowledge would almost automatically allow us to start developing those technologies right away. Ergo, we do not know what we will know.

These were the days when the grandchildren of businessmen and wealthy landowners headed for the intellectual professions.

a butterfly moving its wings in India could cause a hurricane in New York, two years later.

While the scholastic-minded will memorize declensions, the a-Platonic nonnerd will acquire, say, Serbo-Croatian by picking up potential girlfriends in bars on the outskirts of Sarajevo, or talking to cabdrivers, then fitting (if needed) grammatical rules to the knowledge he already possesses. Consider again the central planner. As with language,

Platonic is top-down, formulaic, closed-minded, self-serving, and commoditized; a-Platonic is bottom-up, open-minded, skeptical, and empirical.

don’t ask the barber if you need a haircut—and don’t ask an academic if what he does is relevant. So

If I can predict all of your actions, under given circumstances, then you may not be as free as you think you are.

There is a strong link between rationality, predictability, and mathematical tractability.

Legions of empirical psychologists of the heuristics and biases school have shown that the model of rational behavior under uncertainty is not just grossly inaccurate but plain wrong as a description of reality.

Tolstoy said that happy families were all alike, while each unhappy one is unhappy in its own way.

Why do we listen to experts and their forecasts? A candidate explanation is that society reposes on specialization, effectively the division of knowledge. You do not go to medical school the minute you encounter a big health problem; it is less taxing (and certainly safer) for you to consult someone who has already done so.

Always remember that “R-square” is unfit for Extremistan; it is only good for academic promotion.

To me utopia is an epistemocracy, a society in which anyone of rank is an epistemocrat, and where epistemocrats manage to be elected. It would be a society governed from the basis of the awareness of ignorance, not knowledge.

There is a blind spot: when we think of tomorrow we do not frame it in terms of what we thought about yesterday on the day before yesterday. Because of this introspective defect we fail to learn about the difference between our past predictions and the subsequent outcomes. When we think of tomorrow, we just project it as another yesterday.

The first direction, from the ice cube to the puddle, is called the forward process. The second direction, the backward process, is much, much more complicated. The forward process is generally used in physics and engineering; the backward process in nonrepeatable, nonexperimental historical approaches.

In a way, the limitations that prevent us from unfrying an egg also prevent us from reverse engineering history.

The empirical doctor’s approach to the problem of induction was to know history without theorizing from it. Learn to read history, get all the knowledge you can, do not frown on the anecdote, but do not draw any causal links, do not try to reverse engineer too much—but if you do, do not make big scientific claims.

For the learning of every virtue there is an appropriate discipline, and for the learning of suspended judgment the best discipline is philosophy.

that we humans have a mental hang-up about failures: “You need to love to lose” was his motto. In fact, the reason I felt immediately at home in America is precisely because American culture encourages the process of failure, unlike the cultures of Europe and Asia where failure is met with stigma and embarrassment. America’s specialty is to take these small risks for the rest of the world, which explains this country’s disproportionate share in innovations. Once established, an idea or a product is later “perfected” over there.

you need to put a portion, say 85 to 90 percent, in extremely safe instruments, like Treasury bills—as safe a class of instruments as you can manage to find on this planet. The remaining 10 to 15 percent you put in extremely speculative bets, as leveraged as possible (like options), preferably venture capital–style portfolios.* That way you do not depend on errors of risk management; no Black Swan can hurt you at all, beyond your “floor,”

Instead of having medium risk, you have high risk on one side and no risk on the other.

First, make a distinction between positive contingencies and negative ones. Learn to distinguish between those human undertakings in which the lack of predictability can be (or has been) extremely beneficial and those where the failure to understand the future caused harm. There are both positive and negative Black Swans. William Goldman was involved in the movies, a positive–Black Swan business. Uncertainty did occasionally pay off there.

Aside from the movies, examples of positive–Black Swan businesses are: some segments of publishing, scientific research, and venture capital. In these businesses, you lose small to make big.

Don’t look for the precise and the local. Simply, do not be narrow-minded.

invest in preparedness, not in prediction.

Seize any opportunity, or anything that looks like opportunity. They are rare, much rarer than you think. Remember that positive Black Swans have a necessary first step: you need to be exposed to them. Many people do not realize that they are getting

This makes living in big cities invaluable because you increase the odds of serendipitous encounters—you gain exposure to the envelope of serendipity. The

Diplomats understand that very well: casual chance discussions at cocktail parties usually lead to big breakthroughs—not dry correspondence or telephone conversations. Go to parties!

Beware of precise plans by governments.

The Achilles’ heel of capitalism is that if you make corporations compete, it is sometimes the one that is most exposed to the negative Black Swan that will appear to be the most fit for survival.

If you hear a “prominent” economist using the word equilibrium, or normal distribution, do not argue with him;

Indeed, the notion of asymmetric outcomes is the central idea of this book: I will never get to know the unknown since, by definition, it is unknown. However, I can always guess how it might affect me, and I should base my decisions around that.

Pascal’s wager, after the philosopher and (thinking) mathematician Blaise Pascal. He presented it something like this: I do not know whether God exists, but I know that I have nothing to gain from being an atheist if he does not exist, whereas I have plenty to lose if he does. Hence, this justifies my belief in God.

This idea that in order to make a decision you need to focus on the consequences (which you can know) rather than the probability (which you can’t know) is the central idea of uncertainty. Much of my life is based on it.

I’ll sum up this long section on prediction by stating that we can easily narrow down the reasons we can’t figure out what’s going on. There are: a) epistemic arrogance and our corresponding future blindness; b) the Platonic notion of categories, or how people are fooled by reductions, particularly if they have an academic degree in an expert-free discipline; and, finally c) flawed tools of inference, particularly the Black Swan–free tools from Mediocristan.

The more I think about my subject, the more I see evidence that the world we have in our minds is different from the one playing outside.

Would you rather read Kundera for $13.99 or some unknown author for $1? So it looks like a tournament, where the winner grabs the whole thing—and he does not have to win by much.

Our opinions about artistic merit are the result of arbitrary contagion even more than our political ideas are.

“Trading may have princes, but nobody stays a king” and “The people you meet on the way up, you will meet again on the way down.”

the idea of the long tail, which seems to be the exact opposite of the concentration implied by scalability. The long tail implies that the small guys, collectively, should control a large segment of culture and commerce, thanks to the niches and subspecialties that can now survive thanks to the Internet.

In sum, the long tail is a by-product of Extremistan that makes it somewhat less unfair: the world is made no less unfair for the little guy, but it now becomes extremely unfair for the big man.

rephrase here: we will have fewer but more severe crises. The rarer the event, the less we know about its odds. It means that we know less and less about the possibility of a crisis.

We live in a society of one person, one vote, where progressive taxes have been enacted precisely to weaken the winners.

It was calculated that actors who win an Oscar tend to live on average about five years longer than their peers who don’t.

The point of this list is to illustrate the acceleration. Look at the difference in odds between 60 and 70 centimeters taller than average: for a mere increase of four inches, we go from one in 1 billion people to one in 780 billion!

Because we have to measure the coefficients in real life, which is much harder than with a Gaussian framework. Only the Gaussian yields its properties rather rapidly. The method I propose is a general way of viewing the world rather than a precise solution.

the Gaussian–bell curve variations face a headwind that makes probabilities drop at a faster and faster rate as you move away from the mean, while “scalables,” or Mandelbrotian variations, do not have such a restriction.