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

by Nassim Nicholas Taleb

Who gets rewarded, the central banker who avoids a recession or the one who comes to “correct” his predecessors’ faults and happens to be there during some economic recovery? Who is more valuable, the politician who avoids a war or the one who starts a new one (and is lucky enough to win)?

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.

Why? Because the bell curve ignores large deviations, cannot handle them, yet makes us confident that we have tamed uncertainty. Its nickname in this book is GIF, Great Intellectual Fraud.

Models and constructions, these intellectual maps of reality, are not always wrong; they are wrong only in some specific applications. The difficulty is that a) you do not know beforehand (only after the fact) where the map will be wrong, and b) the mistakes can lead to severe consequences. These models are like potentially helpful medicines that carry random but very severe side effects.

The next time a Martian visits earth, try to explain to him why those who favor allowing the elimination of a fetus in the mother’s womb also oppose capital punishment. Or try to explain to him why those who accept abortion are supposed to be favorable to high taxation but against a strong military. Why do those who prefer sexual freedom need to be against individual economic liberty?

Today’s alliance between Christian fundamentalists and the Israeli lobby would certainly seem puzzling to a nineteenth-century intellectual—Christians used to be anti-Semites and Moslems were the protectors of the Jews, whom they preferred to Christians.

Look at the implication for the Black Swan. 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.

We fool ourselves with stories that cater to our Platonic thirst for distinct patterns: the narrative fallacy.

What we see is not necessarily all that is there. History hides Black Swans from us and gives us a mistaken idea about the odds of these events: this is the distortion of silent evidence.

there is no evidence of the possibility of large events, i.e., Black Swans. You are likely to confuse that statement, however, particularly if you do not pay close attention, with the statement that there is evidence of no possible Black Swans. Even though it is in fact vast, the logical distance between the two assertions will seem very narrow in your mind, so that one can be easily substituted for the other.

I call this confusion the round-trip fallacy, since these statements are not interchangeable.

and look at the number of people who, after riding the escalator for a couple of floors, head directly to the StairMasters.

Explanations bind facts together. They make them all the more easily remembered; they help them make more sense.

Where this propensity can go wrong is when it increases our impression of understanding.

You will also be humiliated for resisting to theorize. (There are tricks to achieving true skepticism; but you have to go through the back door rather than engage in a frontal attack on yourself.)

There are reasons for us to be suspicious of these “right brain/left brain” distinctions and subsequent pop-science generalizations about personality. Indeed, the idea that the left brain controls language may not be so accurate: the left brain seems more precisely to be where pattern interpretation resides, and it may control language only insofar as language has

The first problem is that information is costly to obtain. The second problem is that information is also costly to store—like real estate in New York.

Hence the same condition that makes us simplify pushes us to think that the world is less random than it actually is.

The second sentence is, in a way, much lighter to carry and easier to remember; we now have one single piece of information in place of two.

This simple inability to remember not the true sequence of events but a reconstructed one will make history appear in hindsight to be far more explainable than it actually was—or is.

you remember the last time you remembered the event and, without realizing it, change the story at every subsequent remembrance. So we pull memories along causative lines, revising them involuntarily and unconsciously.

“One death is a tragedy; a million is a statistic.”

But now you have a slow-thinking thirty-year-old security analyst at a downtown Manhattan firm who “judges” your results and reads too much into them. He likes routine rewards, and the last thing you can deliver are routine rewards.

The economist William Baumol calls this “a touch of madness.”

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.

(because it was him and because it was me).

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. These families got no support—they did not even know that their loved ones were also the victims of bin Laden.

“Look what I did for you” than “Look what I avoided for you.”

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.

It is why we do not see Black Swans: we worry about those that happened, not those that may happen but did not.

as long as reverse engineering such an equation does not seem within human possibility, it should be deemed random and not bear the name “deterministic chaos.”

History is useful for the thrill of knowing the past, and for the narrative (indeed), provided it remains a harmless narrative.

Do not try to avoid predicting—yes, after this diatribe about prediction I am not urging you to stop being a fool. Just be a fool in the right places.*

Know how to rank beliefs not according to their plausibility but by the harm they may cause.

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.

And that is the key for the Gaussian. So much in the middle washes out—and we will see that there is a lot in the middle.

This is a key attribute of the nonscalable framework to analyzing randomness: extreme deviations decrease at an increasing rate.

If you need to retain one single piece of information, just remember this dramatic speed of decrease in the odds as you move away from the average. Outliers are increasingly unlikely. You can safely ignore them.

This property also generates the supreme law of Mediocristan: given the paucity of large deviations, their contribution to the total will be vanishingly small.

Remember that if either of these two central assumptions is not met, your moves (or coin tosses) will not cumulatively lead to the bell curve.

This tells me the following: I can make inferences about things that I do not see in my data, but these things should still belong to the realm of possibilities. There is an invisible bestseller out there, one that is absent from the past data but that you need to account for.

Missing a train is only painful if you run after it!

Imagine a speck of dust next to a planet a billion times the size of the earth. The speck of dust represents the odds in favor of your being born; the huge planet would be the odds against it. So stop sweating the small stuff.