The Black Swan – by Nassim Taleb

The Black Swan illustrates the severe limitations of our thinking, and the fragility of our knowledge. All it takes is one single observation to invalidate a millennia of confirmation.

Black Swans are hidden from view, because of our array of biasis and irrationalities, such as the narrative fallacy, the ludic fallacy and confirmation bias. Taleb shows us that the unpredictable, high impact events are the most consequential parts in culture and in your life.

Although the world is ran by unpredictable events, it doesn’t mean we can’t benefit from them. Taleb closes with a bunch of practical tips to benefit from the uncertainty in the world.

The Black Swan Summary

In The Black Swan Nassim says “Before the discovery of Australia, the people in the old world were convinced that all swans were white, an unassailable belief as it seemed completely confirmed by evidence. The sighting of the first black swan might have been an interesting surprise, but that is not where the significance of the story lies. It illustrates a severe limitation to our learning from observations or experience, and the fragility of our knowledge.  One single observation can invalidate a general statement derived from millennia of confirmatory sightings of millions of white swans. All you need is one single black bird”

Human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable. How about the rise of Hitler and subsequent war? How about the market crash of 1987, and the more unexpected recovery? How about the rise of the internet? All follow these Black Swan dynamics. Literally, just about everything of significance around you might qualify is the same. The central idea of the book concerns our blindness with respect to randomness, particularly large deviations.

The Black Swans are so unpredictable, we need to adjust to their existence rather than try to predict them.

Umberto’s Library

The writer Umberto Eco belongs to a small insightful class of scholars with  a huge library. People ask him “what a huge library you have, how many have you read?” It turns out he hasn’t read much. He believes that unread books present more value than read books, so he has a lot more of them in his library serving as a constant reminder the extent of his ignorance. Let us call this collection of unread books an antilibrary

Unlike Umberto, we tend to treat our knowledge as personal property to be protected and defended. It is an ornament that allows us to rise up in the pecking order. We think we know everything, we don’t acknowledge that we don’t know and we aren’t proud of not knowing like Umberto. Minimise exposure to negative Black Swans by being an Antischolar,  someone who focuses on the unread books and makes an attempt not to treat his knowledge as a treasure, or even a possession, or even a self-esteem enhancing device.

The Empirical Skeptic

Everyone thinks they know what is going on in this world that is much more complicated than they realise. When something  unexpected happens, they retrospectively distort all previous thoughts. They can only assess matters after the fact,  as if they were in the rearview mirror. History books are much more organised than empirical reality.  Our minds are wonderful explaining machines, capable of making sense of almost anything, capable of mounting explanations for all manner of phenomena. We are also generally incapable of accepting the idea of unpredictability.

Events are unexplainable , but intelligent people are good at making explanations. The smarter they are, the better sounding the explanation. What’s more worrisome is that all these beliefs and accounts appeared to be logically coherent and devoid of inconsistencies. Any reduction in the world around us can have explosive consequences since it rules out some sources of uncertainty. You may think that Islam is your ally against the threat of communism, until they fly two planes into New York.

The Black Swans in the world

When you ask people the three technologies that most impact our world today, they say something like: the computer, the laser and the internet. All 3 were unplanned, unpredicted and unappreciated upon their discovery and remained unappreciated after their initial use. We can be sure that in 30 years’ time it will follow the same pattern, the technologies running the world will be nothing we can conceive of now, but when they arrive we’ll consider them retrospectively obvious. 

Negative Black Swans: The turkey

A turkey is fed every single day, firming up the bird’s belief that is the general rule of life to be provided sustenance by friendly family members of the human race. On the afternoon before the Wednesday of thanks giving… Something unexpected will happen to the turkey: it will incur a revision of belief.  After 1000 days of being fed, and the expectation of being fed growing with each meal: on day 1001 he gets killed and eaten for the thanksgiving dinner.

The narrative fallacy

The potency of narrative can be described as “the king died and the queen died”, compared to “the king died and then the queen died of grief”. This is the difference between mere succession of information and a plot. Although we added info to the second, we effectively reduced the dimension of the total. The second is lighter to carry and easier to remember. We now have a single piece of info in place of two, can remember it easier and also sell it to others, that is, to market it better as a packaged idea. 

We tend to easily remember the facts from the past that fit a narrative, while we tend to neglect others that do not appear to play a causal role in the narrative. The 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. Wherever there is a market move, the news media feel obligated to give the reason. A December 2003, news headline by Bloomberg News :

13:01. Treasuries rise; Hussein capture may not curb terrorism. At 13:31, they issued the next bulletin 

13.31 . Treasuries fall; Hussein capture boosts the allure of risky assets

So it was the same capture and cause explaining one event and it’s exact opposite. Clearly two facts cannot be linked. Newspapers get impeccable facts, but weave them into a narrative in such a way to convey the impression of causality (and knowledge).

  No Evidence vs Absence of Evidence

Like if someone observed the turkeys first thousand days, rightly so, they’d say there is no evidence of the possibility of large events or  The Black Swans. Many people confuse the statement  “almost all terrorists are muslims”, with “all muslims are terrorists” (the difference is out by a factor of about 50,000). The logical mistake makes you overestimate the odds of a randomly drawn individual Muslim person.

An acronym in medical literature is NED, no evidence of disease. There is no such thing as evidence of no disease. The acronym discards unknowns. Many doctors who publish papers fall for this fallacy. There was a doctor in the middle of the 1960’s looked down at mothers milk as something primitive, as if it could be replicated in labs – not realising that mothers milk might include useful components that have eluded scientific understanding (science captures only the known). A simply confusion of absence of evidence of the benefits of mother’s milk with evidence of absence of benefits. Many people paid the price for the naïve inference: those who were not breast-fed as infants turned out to be at increased risk of a range of health problems, including developing certain types of cancer. 

Silent Evidence Fallacy

The New York Times records stories of those who have committed crimes, but have not been caught. Our representation of the standard criminal, might be based on the properties of the less intelligent ones that have been caught. Once we lean ourselves into the notion of silent evidence, the things around us that were previously hidden start manifesting themselves.

There is a belief among gamblers that beginners are almost always lucky. It gets worse later, but they are always lucky when they start out. It actually is empirically true: researchers confirm that gamblers have lucky beginnings. But should we all jump in to check? The lucky ones, will be encouraged and continue gambling, the others who are discouraged, will not later show up in the sample. 

Survivorship Bias

Rich gamblers coming out of a casino, may claim that the taste for gambling is good for the species because gambling makes you rich! Risk taking made many species head for distinction! If you look at the population of beginning gamblers taken as a whole, you can be certain that at least one of them will show stellar results by luck. If you look at the population of beginning gamblers taken as a whole, you can be certain that at least one of them will show stellar results by luck. Do not compute the odds of the reference point of the winning gambler, but from all of those who started in the co-hort.

The Black Swan Careers

Black Swan careers are tough. Some business, artistic or scientific activities belong to this category. You are the reverse Turkey, one event will pay 100x the dividends of the time invested – the grand vindication. Until that moment, it all seems like a big waste of time from the outside. Or there is a real possibility that time will never come and you will always be perceived as a failure.Some blindness to the odds, or an obsession with their own positive Black Swan is necessary for entrepreneurs to function. But some people are like the turkey. Exposed to a major blowup without being aware of it. While others play the reverse turkey, prepared for big events that might surprise others. In some strategies and life situations, you gamble dollars to win a succession of pennies, to appear to be winning all of the time. 

Scalable Professions

The Black Swan’s Nassim Taleb got advice when he was 22 to find a profession that is scalable, that is one where you’re not paid by the hour and thus subject to limitations of your time and labour. Some professions like dentists, consultants or massage professionals cannot be scaled, there is a cap on how many people you can see. In these professions, no matter how much you get paid, your income is subject to gravity. Moreover, these professions are very predictable: it will vary but not to the point of making the income of a single day more significant than the rest of your life. In other words, it will not be Black Swan driven.

In scalable professions,  you do the same work whether you produce a hundred units or 1000. For a podcast, the effort to reach 10 people might be similar to that of reaching 10 million people. In writing, the same effort is taken to attract one reader, or several hundred million – JK Rowling doesn’t have to write a book each time someone reads it. 

The advent of scalability

Consider the fate of Giaccomo, the opera singer at the end of the 19th Century. In his day, there was no way of storing his work, so his presence was required for every single performance, so the pie was evenly split, relatively, as inequalities existed but were mild. At this time in history, there is no scalability yet, no way to double the largest in person audience without having to sing twice.

Now consider the effect of the first music recording. Our ability to reproduce allows us to listen on our laptop to hours of background music of Vladimir Horowitz (now dead), performing Rachmanioff’s Preludes, instead of the local Russian still singing. Horowitz, although dead, is putting the poor local Russian man out of business. We would rather pay 10$ for Horowitz than the relatively unknown Russian guy today.

Nassim’s Advice

Learn to make distinctions where the positive and negative black swans are. A negative black swan business is where the exposure can hit hard and hurt severely,  like the military. Apart from movies, positive black swan businesses include science, research, venture capital etc. For unexpected reasons, it may take off. You can try to find places where the downside is small and easily controlled. For your exposure to be positive black swan, you do not need precise understanding of the structure of uncertainty

You can’t predict  the black swans –  if you try it tends to make you vulnerable to the ones you don’t predict.

Seize any opportunity, or anything that looks like an opportunity, the swan may be lurking.  Opportunities are much rarer than you think. Remember, positive black swans have a necessary first step, you need to be exposed to them. Many people don’t see that they are getting a lucky break in life when it is standing right in front of them. 

Work hard, not in grunt work, but in chasing opportunities and maximising exposure to them.