The Black Swan: The Impact of the Highly Improbable (Incerto, #2)

by Nassim Nicholas Taleb

First, it is an outlier, as it lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility. Second, it carries an extreme impact (unlike the bird). Third, in spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable.

I stop and summarize the triplet: rarity, extreme impact, and retrospective (though not prospective) predictability.

The payoff of a human venture is, in general, inversely proportional to what it is expected to be.

What is surprising is not the magnitude of our forecast errors, but our absence of awareness of it.

The strategy for the discoverers and entrepreneurs is to rely less on top-down planning and focus on maximum tinkering and recognizing opportunities when they present themselves. So I disagree with the followers of Marx and those of Adam Smith: the reason free markets work is because they allow people to be lucky, thanks to aggressive trial and error, not by giving rewards or “incentives” for skill. The strategy is, then, to tinker as much as possible and try to collect as many Black Swan opportunities as you can.

free markets work is because they allow people to be lucky, thanks to aggressive trial and error, not by giving rewards or “incentives” for skill. The strategy is, then, to tinker as much as possible and try to collect as many Black Swan opportunities as you can.

The French, after the Great War, built a wall along the previous German invasion route to prevent reinvasion—Hitler just (almost) effortlessly went around it. The French had been excellent students of history; they just learned with too much precision. They were too practical and exceedingly focused for their own safety.

It is the same logic reversal we saw earlier with the value of what we don’t know; everybody knows that you need more prevention than treatment, but few reward acts of prevention.

The Platonic fold is the explosive boundary where the Platonic mind-set enters in contact with messy reality, where the gap between what you know and what you think you know becomes dangerously wide. It is here that the Black Swan is produced.

The first leg of the triplet is the pathology of thinking that the world in which we live is more understandable, more explainable, and therefore more predictable than it actually is.

History and societies do not crawl. They make jumps. They go from fracture to fracture, with a few vibrations in between. Yet we (and historians) like to believe in the predictable, small incremental progression.

Categorizing is necessary for humans, but it becomes pathological when the category is seen as definitive, preventing people from considering the fuzziness of boundaries, let alone revising their categories.

Categorizing always produces reduction in true complexity. It is a manifestation of the Black Swan generator,

Any reduction of the world around us can have explosive consequences since it rules out some sources of uncertainty; it drives us to a misunderstanding of the fabric of the world.

Recall that the Platonic fold is where our representation of reality ceases to apply—but we do not know it.

So the distinction between writer and baker, speculator and doctor, fraudster and prostitute, is a helpful way to look at the world of activities. It separates those professions in which one can add zeroes of income with no greater labor from those in which one needs to add labor and time (both of which are in limited supply)—in other words, those subjected to gravity.

When your sample is large, no single instance will significantly change the aggregate or the total. The largest observation will remain impressive, but eventually insignificant, to the sum.

In Extremistan, inequalities are such that one single observation can disproportionately impact the aggregate, or the total.

So while weight, height, and calorie consumption are from Mediocristan, wealth is not. Almost all social matters are from Extremistan.

Extremistan can produce Black Swans, and does, since a few occurrences have had huge influences on history. This is the main idea of this book.

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.

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.

In general, positive Black Swans take time to show their effect while negative ones happen very quickly—it is much easier and much faster to destroy than to build.

domain specificity of our reactions. By domain-specific I mean that our reactions, our mode of thinking, our intuitions, depend on the context in which the matter is presented, what evolutionary psychologists call the “domain” of the object or the event.

We react to a piece of information not on its logical merit, but on the basis of which framework surrounds it, and how it registers with our social-emotional system. Logical problems approached one way in the classroom might be treated differently in daily life. Indeed they are treated differently in daily life.

The first problem is that information is costly to obtain. The second problem is that information is also costly to store

The more orderly, less random, patterned, and narratized a series of words or symbols, the easier it is to store

Finally, information is costly to manipulate and retrieve.

We, members of the human variety of primates, have a hunger for rules because we need to reduce the dimension of matters so they can get into our heads.

The more random information is, the greater the dimensionality, and thus the more difficult to summarize. The more you summarize, the more order you put in, the less randomness. Hence the same condition that makes us simplify pushes us to think that the world is less random than it actually is.

If you work in a randomness-laden profession, as we see, you are likely to suffer burnout effects from that constant second-guessing of your past actions in terms of what played out subsequently. Keeping a diary is the least you can do in these circumstances.

there are two varieties of rare events: a) the narrated Black Swans, those that are present in the current discourse and that you are likely to hear about on television, and b) those nobody talks about, since they escape models—those that you would feel ashamed discussing in public because they do not seem plausible.

The way to avoid the ills of the narrative fallacy is to favor experimentation over storytelling, experience over history, and clinical knowledge over theories.

In other words, good news is good news first; how good matters rather little. So to have a pleasant life you should spread these small “affects” across time as evenly as possible. Plenty of mildly good news is preferable to one single lump of great news.

A 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.

You cannot do anything with knowledge unless you know where it stops, and the costs of using it.

Academic libertarian: someone (like myself) who considers that knowledge is subjected to strict rules but not institutional authority, as the interest of organized knowledge is self-perpetuation, not necessarily truth (as with governments).

Apelles-style strategy: A strategy of seeking gains by collecting positive accidents from maximizing exposure to “good Black Swans.”

Barbell strategy: a method that consists of taking both a defensive attitude and an excessively aggressive one at the same time, by protecting assets from all sources of uncertainty while allocating a small portion for high-risk strategies.

Bildungsphilister: a philistine with cosmetic, no...

Black Swan blindness: the underestimation of the role of the Black Swan, and occasional overestimation of a specific one.

Confirmation error (or Platonic confirmation): You look for instances that confirm your beliefs, your construction (or model)—and find them.

Empty-suit problem (or “expert problem”): Some professionals have no differential abilities from the rest of the population, but for some reason, and against their empirical records, are believed to be experts:

Epilogism: A theory-free method of looking at history by accumulating facts with minimal generalization and being conscious of the side effects of making causal claims.

Epistemic arrogance: Measure the difference between what someone actually knows and how much he thinks he knows. An excess will imply arrogance, a deficit humility.

Epistemic opacity: Randomness is the result of incomplete information at some layer. It is functionally indistinguishable from “true” or “physical” randomness.

Fallacy of silent evidence: Looking at history, we do not see the full story, only the rosier parts of the process.

Fooled by randomness: the general confusion between luck and determinism, which leads to a variety of superstitions with practical consequences, such as the belief that higher earnings in some professions are generated by skills when there is a significant component of luck in them.

Future blindness: our natural inability to take into account the properties of the future—like autism, which prevents one from taking into accou...

Locke’s madman: someone who makes impeccable and rigorous reasoning fro...