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.

Black Swan logic makes what you don’t know far more relevant than what you do know.

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.

Almost everything in social life is produced by rare but consequential shocks and jumps; all the while almost everything studied about social life focuses on the “normal,”

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.

From the standpoint of the turkey, the nonfeeding of the one thousand and first day is a Black Swan. 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. You realize that you can eliminate a Black Swan by science (if you’re able), or by keeping an open mind.

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

When we try to collect information about the world around us, we tend to be guided by our biology, and our attention flows effortlessly toward the sensational—not the relevant so much as the sensational. Somehow the guidance system has gone wrong in the process of our coevolution with our habitat—it was transplanted into a world in which the relevant is often boring, nonsensational.

the ludic fallacy—the attributes of the uncertainty we face in real life have little connection to the sterilized ones we encounter in exams and games.

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. When you develop your opinions on the basis of weak evidence, you will have difficulty interpreting subsequent information that contradicts these opinions, even if this new information is obviously more accurate.

The increase in the information set did not lead to an increase in their accuracy; their confidence in their choices, on the other hand, went up markedly. Information proved to be toxic.

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

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. We feel responsible for the good stuff, but not for the bad. This causes us to think that we are better than others at whatever we do for a living.

It is often said that “is wise he who can see things coming.” Perhaps the wise one is the one who knows that he cannot see things far away.

“You got to be very careful if you don’t know where you’re going, because you might not get there.”

invest in preparedness, not in prediction.

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.

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.

Working with such abundant data humbles us; it provides the intuition of the following error: traveling the road between representation and reality in the wrong direction.

In the last fifty years, the ten most extreme days in the financial markets represent half the returns.

I care about the premises more than the theories, and I want to minimize reliance on theories, stay light on my feet, and reduce my surprises. I want to be broadly right rather than precisely wrong.

Clearly, you cannot doubt everything and function; you cannot believe everything and survive.

we in real life do not care about simple, raw probability (whether an event happens or does not happen); we worry about consequences (the size of the event; how much total destruction of lives or wealth, or other losses, will come from it; how much benefit a beneficial event will bring).