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

by Nassim Nicholas Taleb

The more unexpected the success of such a venture, the smaller the number of competitors, and the more successful the entrepreneur who implements the idea.

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.

Evidence shows that we do much less thinking than we believe we do—except, of course, when we think about it.

this book is a story, and I prefer to use stories and vignettes to illustrate our gullibility about stories and our preference for the dangerous compression of narratives.

You need a story to displace a story. Metaphors and stories are far more potent (alas) than ideas; they are also easier to remember and more fun to read. If I have to go after what I call the narrative disciplines, my best tool is a narrative. Ideas come and go, stories stay.

I present the three facets of the same Black Swan problem: a) The error of confirmation, or how we are likely to undeservedly scorn the virgin part of the library (the tendency to look at what confirms our knowledge, not our ignorance), in Chapter 5; b) the narrative fallacy, or how we fool ourselves with stories and anecdotes (Chapter 6); c) how emotions get in the way of our inference (Chapter 7); and d) the problem of silent evidence, or the tricks history uses to hide Black Swans from us (Chapter 8). Chapter 9 discusses the lethal fallacy of building knowledge from the world of games.

triplet of opacity. They are: the illusion of understanding, or how everyone thinks he knows what is going on in a world that is more complicated (or random) than they realize; the retrospective distortion, or how we can assess matters only after the fact, as if they were in a rearview mirror (history seems clearer and more organized in history books than in empirical reality); and the overvaluation of factual information and the handicap of authoritative and learned people, particularly when they create categories—when they “Platonify.”

Simply, the diary purported to describe the events as they were taking place, not after.

I wanted to become a flâneur, a professional meditator, sit in cafés, lounge, unglued to desks and organization structures, sleep as long as I needed, read voraciously, and not owe any explanation to anybody. I wanted to be left alone in order to build, small steps at a time, an entire system of thought based on my Black Swan idea.

A scalable profession is good only if you are successful; they are more competitive, produce monstrous inequalities, and are far more random, with huge disparities between efforts and rewards—a few can take a large share of the pie, leaving others out entirely at no fault of their own.

Fiber, it turns out, acts to slow down the absorption of sugars in the blood and scrapes the intestinal tract of precancerous cells.

figure chess grand masters, who, it has been shown, actually do focus on where a speculative move might be weak; rookies, by comparison, look for confirmatory instances instead of falsifying ones.

Democrats and Republicans look at different parts of the same data and never converge to the same opinions. Once your mind is inhabited with a certain view of the world, you will tend to only consider instances proving you to be right. Paradoxically, the more information you have, the more justified you will feel in your views.

Our propensity to impose meaning and concepts blocks our awareness of the details making up the concept. However, if you zap people’s left hemispheres, they become more realistic—they can draw better and with more verisimilitude. Their minds become better at seeing the objects themselves, cleared of theories, narratives, and prejudice.

A higher concentration of dopamine appears to lower skepticism and result in greater vulnerability to pattern detection; an injection of L-dopa, a substance used to treat patients with Parkinson’s disease, seems to increase such activity and lowers one’s suspension of belief. The person becomes vulnerable to all manner of fads, such as astrology, superstitions, economics, and tarot-card reading.

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.

As Stalin, who knew something about the business of mortality, supposedly said, “One death is a tragedy; a million is a statistic.” Statistics stay silent in us.

it turns out that some birds, such as parrots, have a high level of intelligence, equivalent to that of dolphins, but that the intelligence of birds correlates with the size of another part of the brain, called the hyperstriatum.

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

Take the relationship between pleasure and drinking water. If you are in a state of painful thirst, then a bottle of water increases your well-being significantly. More water means more pleasure. But what if I gave you a cistern of water? Clearly your well-being becomes rapidly insensitive to further quantities. As a matter of fact, if I gave you the choice between a bottle or a cistern you would prefer the bottle—so your enjoyment declines with additional quantities.

Making $1 million in one year, but nothing in the preceding nine, does not bring the same pleasure as having the total evenly distributed over the same period, that is, $100,000 every year for ten years in a row.

The überpsychologist Danny Kahneman has given us evidence that we generally take risks not out of bravado but out of ignorance and blindness to probability!

the successful defense policy is the one that manages to eliminate potential dangers without war, such as the strategy of bankrupting the Russians through the escalation in defense spending.

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.

The more information you give someone, the more hypotheses they will formulate along the way, and the worse off they will be. They see more random noise and mistake it for information.

The problem is that our ideas are sticky: once we produce a theory, we are not likely to change our minds—so those who delay developing their theories are better off.

No matter what anyone tells you, it is a good idea to question the error rate of an expert’s procedure. Do not question his procedure, only his confidence. (As someone who was burned by the medical establishment, I learned to be cautious, and I urge everyone to be: if you walk into a doctor’s office with a symptom, do not listen to his odds of its not being cancer.)

What matters is not how often you are right, but how large your cumulative errors are.

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.

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

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.

Simply, people need to be blinded by knowledge—we are made to follow leaders who can gather people together because the advantages of being in groups trump the disadvantages of being alone. It has been more profitable for us to bind together in the wrong direction than to be alone in the right one. Those who have followed the assertive idiot rather than the introspective wise person have passed us some of their genes. This is apparent from a social pathology: psychopaths rally followers.

Go to the primate section of the Bronx Zoo where you can see our close relatives in the happy primate family leading their own busy social lives. You can also see masses of tourists laughing at the caricature of humans that the lower primates represent. Now imagine being a member of a higher-level species (say a “real” philosopher, a truly wise person), far more sophisticated than the human primates. You would certainly laugh at the people laughing at the nonhuman primates. Clearly, to those people amused by the apes, the idea of a being who would look down on them the way they look down on the apes cannot immediately come to their minds—if it did, it would elicit self-pity. They would stop laughing.

We have evidence of a mental block and distortions in the way we fail to learn from our past errors in projecting the future of our affective states.

In the end it is those who derive consequences and seize the importance of the ideas, seeing their real value, who win the day. They are the ones who can talk about the subject.

Pit traders are trained to handle angry rants. If you work in the chaotic pits, someone in a particularly bad mood from losing money might start cursing at you until he injures his vocal cords, then forget about it and, an hour later, invite you to his Christmas party. So you become numb to insults, particularly if you teach yourself to imagine that the person uttering them is a variant of a noisy ape with little personal control. Just keep your composure, smile, focus on analyzing the speaker not the message, and you’ll win the argument. An ad hominem attack against an intellectual, not against an idea, is highly flattering. It indicates that the person does not have anything intelligent to say about your message. The

Quitting a high-paying position, if it is your decision, will seem a better payoff than the utility of the money involved (this may seem crazy, but I’ve tried it and it works). This is the first step toward the stoic’s throwing a four-letter word at fate. You have far more control over your life if you decide on your criterion by yourself.

In Black Swan terms, this means that you are exposed to the improbable only if you let it control you. You always control what you do; so make this your end.

Nouriel Roubini (to my knowledge the only professional economist who really predicted the crisis of 2008,

Large companies get government support and become progressively larger and more fragile, and, in a way, run government, another prophetic view of Karl Marx and Friedrich Engels.

One useful trick, I discovered, is to avoid listening to the question of the interviewer, and answer with whatever I have been thinking about recently. Remarkably, neither the interviewers nor the public notices the absence of correlation between question and answer.

One frequent confusion: people believe that I am suggesting that agents should bet on Black Swans taking place, when I am saying that they should avoid blowing up should a Black Swan take place.

Black Swan for the turkey is not a Black Swan for the butcher.

Let me provide once again an illustration of Extremistan. Less than 0.25 percent of all the companies listed in the world represent around half the market capitalization, a less than minuscule percentage of novels on the planet accounts for approximately half of fiction sales, less than 0.1 percent of drugs generate a little more than half the pharmaceutical industry’s sales—and less than 0.1 percent of risky events will cause at least half the damages and losses. From

Life expectancy of humans is not as long as we suspect (under globalization) because the data are missing something central: the big epidemic (which far outweighs the gains from cures).

Let us move voluntarily into a robust economy by helping what needs to be broken break on its own, converting debt into equity, marginalizing the economics and business school establishments, shutting down the “Nobel” in economics, banning leveraged buyouts, putting bankers where they belong, clawing back the bonuses of those who got us here (by claiming restitution of the funds paid to, say, Robert Rubin or banksters whose wealth has been subsidized by taxpaying schoolteachers), and teaching people to navigate a world with fewer certainties.

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