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A black swan is a highly improbable event with three principal characteristics: It is unpredictable; it carries a massive impact; and, after the fact, we concoct an explanation that makes it appear less random, and more predictable, than it was. The astonishing success of Google was a black swan; so was 9/11. For Nassim Nicholas Taleb, black swans underlie almost everything about our world, from the rise of religions to events in our own personal lives.
Why do we not acknowledge the phenomenon of black swans until after they occur? Part of the answer, according to Taleb, is that humans are hardwired to learn specifics when they should be focused on generalities. We concentrate on things we already know and time and time again fail to take into consideration what we don’t know. We are, therefore, unable to truly estimate opportunities, too vulnerable to the impulse to simplify, narrate, and categorize, and not open enough to rewarding those who can imagine the “impossible.”
For years, Taleb has studied how we fool ourselves into thinking we know more than we actually do. We restrict our thinking to the irrelevant and inconsequential, while large events continue to surprise us and shape our world. In this revelatory book, Taleb will change the way you look at the world, and this second edition features a new philosophical and empirical essay, “On Robustness and Fragility,” which offers tools to navigate and exploit a Black Swan world.
Taleb is a vastly entertaining writer, with wit, irreverence, and unusual stories to tell. He has a polymathic command of subjects ranging from cognitive science to business to probability theory. Elegant, startling, and universal in its applications, The Black Swan is a landmark book—itself a black swan.
- LanguageEnglish
- PublisherRandom House
- Publication dateMay 4, 2010
- File size12989 KB
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From the Publisher
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Skin in the Game | Fooled by Randomness | Antifragile | The Bed of Procrustes | Incerto, Deluxe Box Set | |
A bold work from the author of The Black Swan that challenges many of our long-held beliefs about risk and reward, politics and religion, finance and personal responsibility. | An investigation about luck–or more precisely, about how we perceive and deal with luck in life and business. | Through deep investigation and insight, Antifragile reveals how to thrive in an uncertain world. | With a rare combination of pointed wit and potent wisdom, Taleb plows through human illusions, contrasting the classical values of courage, elegance, and erudition against the modern diseases of nerdiness, philistinism, and phoniness. | The Incerto Series is an investigation of opacity, luck, uncertainty, probability, human error, risk, and decision making when we don’t understand the world. Makes the perfect gift for the perpetually curious. |
Editorial Reviews
Review
“The most prophetic voice of all.”—GQ
Praise for The Black Swan
“[A book] that altered modern thinking.”—The Times (London)
“A masterpiece.”—Chris Anderson, editor in chief of Wired, author of The Long Tail
“Idiosyncratically brilliant.”—Niall Ferguson, Los Angeles Times
“The Black Swan changed my view of how the world works.”—Daniel Kahneman, Nobel laureate
“[Taleb writes] in a style that owes as much to Stephen Colbert as it does to Michel de Montaigne. . . . We eagerly romp with him through the follies of confirmation bias [and] narrative fallacy.”—The Wall Street Journal
“Hugely enjoyable—compelling . . . easy to dip into.”—Financial Times
“Engaging . . . The Black Swan has appealing cheek and admirable ambition.”—The New York Times Book Review
Excerpt. © Reprinted by permission. All rights reserved.
ON THE PLUMAGE OF BIRDS
Before the discovery of Australia, people in the old world were convinced that all swans were white, an unassailable belief as it seemed completely confirmed by empirical evidence. The sighting of the first black swan might have been an interesting surprise for a few ornithologists (and others extremely concerned with the coloring of birds), 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 (and, I am told, quite ugly) black bird.*
I push one step beyond this philosophical-logical question into an empirical reality, and one that has obsessed me since childhood. What we call here a Black Swan (and capitalize it) is an event with the following three attributes.
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. 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.* A small number of Black Swans explain almost everything in our world, from the success of ideas and religions, to the dynamics of historical events, to elements of our own personal lives. Ever since we left the Pleistocene, some ten millennia ago, the effect of these Black Swans has been increasing. It started accelerating during the industrial revolution, as the world started getting more complicated, while ordinary events, the ones we study and discuss and try to predict from reading the newspapers, have become increasingly inconsequential.
Just imagine how little your understanding of the world on the eve of the events of 1914 would have helped you guess what was to happen next. (Don’t cheat by using the explanations drilled into your cranium by your dull high school teacher). How about the rise of Hitler and the subsequent war? How about the precipitous demise of the Soviet bloc? How about the rise of Islamic fundamentalism? How about the spread of the Internet? How about the market crash of 1987 (and the more unexpected recovery)? Fads, epidemics, fashion, ideas, the emergence of art genres and schools. All follow these Black Swan dynamics. Literally, just about everything of significance around you might qualify.
This combination of low predictability and large impact makes the Black Swan a great puzzle; but that is not yet the core concern of this book. Add to this phenomenon the fact that we tend to act as if it does not exist! I don’t mean just you, your cousin Joey, and me, but almost all “social scientists” who, for over a century, have operated under the false belief that their tools could measure uncertainty. For the applications of the sciences of uncertainty to real-world problems has had ridiculous effects; I have been privileged to see it in finance and economics. Go ask your portfolio manager for his definition of “risk,” and odds are that he will supply you with a measure that excludes the possibility of the Black Swan–hence one that has no better predictive value for assessing the total risks than astrology (we will see how they dress up the intellectual fraud with mathematics). This problem is endemic in social matters.
The central idea of this book concerns our blindness with respect to randomness, particularly the large deviations: Why do we, scientists or nonscientists, hotshots or regular Joes, tend to see the pennies instead of the dollars? Why do we keep focusing on the minutiae, not the possible significant large events, in spite of the obvious evidence of their huge influence? And, if you follow my argument, why does reading the newspaper actually decrease your knowledge of the world?
It is easy to see that life is the cumulative effect of a handful of significant shocks. It is not so hard to identify the role of Black Swans, from your armchair (or bar stool). Go through the following exercise. Look into your own existence. Count the significant events, the technological changes, and the inventions that have taken place in our environment since you were born and compare them to what was expected before their advent. How many of them came on a schedule? Look into your own personal life, to your choice of profession, say, or meeting your mate, your exile from your country of origin, the betrayals you faced, your sudden enrichment or impoverishment. How often did these things occur according to plan?
* The spread of camera cell phones has afforded me a large collection of pictures of black swans sent by traveling readers. Last Christmas I also got a case of Black Swan Wine (not my favorite), a videotape (I don’t watch videos), and two books. I prefer the pictures.
* The highly expected not happening is also a Black Swan. Note that, by symmetry the occurrence of a highly improbable event is the equivalent of the nonoccurrence of a highly probable one.
What You Do Not Know
Black Swan logic makes what you don’t know far more relevant than what you do know. Consider that many Black Swans can be caused and exacerbated by their being unexpected.
Think of the terrorist attack of September 11, 2001: had the risk been reasonably conceivable on September 10, it would not have happened. If such a possibility were deemed worthy of attention, fighter planes would have circled the sky above the twin towers, airplanes would have had locked bulletproof doors, and the attack would not have taken place, period. Something else might have taken place. What? I don’t know. Isn’t it strange to see an event happening precisely because it was not supposed to happen? What kind of defense do we have against that? Whatever you come to know (that New York is an easy terrorist target, for instance) may become inconsequential if your enemy knows that you know it. It may be odd to realize that, in such a strategic game, what you know can be truly inconsequential.
This extends to all businesses. Think about the “secret recipe” to making a killing in the restaurant business. If it were known and obvious then someone next door would have already come up with the idea and it would have become generic. The next killing in the restaurant industry needs to be an idea that is not easily conceived of by the current population of restaurateurs. It has to be at some distance from expectations. 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. The same applies to the shoe and the book businesses–or any kind of entrepreneurship. The same applies to scientific theories–nobody has interest in listening to trivialities. The payoff of a human venture is, in general, inversely proportional to what it is expected to be.
Consider the Pacific tsunami of December 2004. Had it been expected, it would not have caused the damage it did– the areas affected would have been less populated, an early warning system would have been put in place. What you know cannot really hurt you.
Experts and “Empty Suits”
The inability to predict outliers implies the inability to predict the course of history, given the share of these events in the dynamics of events.
But we act as though we are able to predict historical events, or, even wore, as if we are able to change the course of history. We produce thirty year projections of social security deficits and oil prices without realizing that we cannot even predict these for next summer–our cumulative prediction errors for political and economic events are so monstrous that every time I look at the empirical record I have to pinch myself to verify that I am not dreaming. What is surprising is not the magnitude of our forecast errors, but our absence of awareness of it. This is all the more worrisome when we engage in deadly conflicts: wars are fundamentally unpredictable (and we do not know it). Owing to this misunderstanding of the casual chains between policy and actions, we can easily trigger Black Swans thanks to aggressive ignorance–like a child playing with a chemistry kit.
Our inability to predict in environments subjected to the Black Swan, coupled with a general lack of the awareness of this state of affairs, means that certain professionals, while believing they are experts, are in fact not. based on their empirical record, they do not know more about their subject matter than the general population, but they are much better at narrating–or, worse, at smoking you with complicated mathematical models. They are also more likely to wear a tie.
Black Swans being unpredictable, we need to adjust to their existence (rather than naïvely try to predict them). There are so many things we can do if we focus on anti knowledge, or what we do not know. Among many other benefits, you can set yourself up to collect serendipitous Black Swans by maximizing your exposure to them.
Learning to Learn
Another related human impediment comes from excessive focus on what we do know: we tend to learn the precise, not the general.
What did people learn from the 9/11 episode? Did they learn that some events, owing to their dynamics, stand largely outside the realm of the predictable? No. Did they learn the built-in defect of conventional wisdom? No. What did they figure out? They learned precise rules for avoiding Islamic prototerrorists and tall buildings. Many keep reminding me that it is important for us to be practical and take tangible steps rather than to “theorize” about knowledge. The story of the Maginot Line shows how we are conditioned to be specific. 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.
We do not spontaneously learn that we don’t learn that we don’t learn. The problem lies in the structure of our minds: we don’t learn rules, just facts, and only facts. Metarules (such as the rule that we have a tendency to not learn rules) we don’t seem to be good at getting. We scorn the abstract; we scorn it with passion.
Why? It is necessary here, as it is my agenda in the rest of this book, both to stand conventional wisdom on its head and to show how inapplicable it is to our modern, complex, and increasingly recursive environment.*
But there is a deeper question: What are our minds made for? It looks as if we have the wrong user’ s manual. Our minds do not seem made to think and introspect; if they were, things would be easier for us today, but then we would not be here today and I would not have been here to talk about it–my counterfactual, introspective, and hard-thinking ancestor would have been eaten by a tiger while his nonthinking, but faster-reacting cousin would have run for cover. Consider that thinking is time-consuming and generally a great waste of energy, that our predecessors spent more than a hundred million years as nonthinking mammals and that in the blip in our history during which we have used our brain we have used it on subjects too peripheral to matter. Evidence shows that we do much less thinking than we believe we do—except, of course, when we think about it.
* Recursive here means that the world in which we live has an increasing number of feedback loops, causing events to be the cause of more events (say, people buy a book because other people bought it), thus generating snowballs and arbitrary and unpredictable planet-wide winner-take-all effects. We live in an environment where information flows too rapidly, accelerating such epidemics. Likewise, events can happen because they are not supposed to happen. (Our intuitions are made for an environment with simpler causes and effects and slowly moving information.) This type of randomness did not prevail during the Pleistocene.
A NEW KIND OF INGRATITUDE
It is quite saddening to think of those people who have been mistreated by history. There were the poètes maudits, like Edgar Allan Poe or Arthur Rimbaud, scorned by society and later worshipped and force-fed to schoolchildren. (There are even schools named after high school dropouts). Alas, this recognition came a little too late for the poet to get a serotonin kick out of it, or to prop up his romantic life on earth. But there are even more mistreated heroes–the very sad category of those who we do not know were heroes, who saved our lives, who helped us avoid disasters. They left no traces and did not even know that they were making a contribution. We remember the martyrs who died for a cause that we knew about, never those no less effective in their contribution but whose cause we were never aware–precisely because they were successful. Our ingratitude towards the poètes maudits fades completely in front of this other type of thanklessness. This is a far more vicious kind of ingratitude: the feeling of uselessness on the part of the silent hero. I will illustrate with the following thought experiment.
Assume that a legislator with courage, influence, intellect, vision, and perseverance manages to enact a law that goes into universal effect and employment on September 10, 2001; it imposes the continuously locked bulletproof doors in every cockpit (at high costs to the struggling airlines)– just in case terrorists decide to use planes to attack the World Trade
Center in New York City. I know this is lunacy, but it is just a thought experiment (I am aware that there may be no such thing as a legislator with intellect, courage, vision, and perseverance; this is the point of the thought experiment). The legislation is not a popular measure among the airline personnel, as it complicates their lives. But it would certainly have prevented 9/11.
The person who imposed locks on cockpit doors gets no statues in public squares, not so much as a quick mention of his contribution in his obituary. “Joe Smith, who helped avoid the disaster of 9/11, died of complications of liver disease.” Seeing how superfluous his measure was, and how it squandered resources, the public, with great help from airline pilots, might well boot him out of office. Vox clamantis in deserto. He will retire depressed, with a great sense of failure. He will die with the impression of having done nothing useful. I wish I could go attend his funeral, but, reader, I can’t find him. And yet, recognition can be quite a pump. Believe me, even those who genuinely claim that they do not believe in recognition, and that they separate labor from the fruits of labor, actually get a serotonin kick from it. See how the silent hero is rewarded: even his own hormonal system will conspire to offer no reward.
Now consider again the events of 9/11. In their aftermath, who got the recognition? Those you saw in the media, on television performing heroic acts, and those whom you saw trying to give you the impression that they were performing heroic acts. The latter category includes someone like the New York Stock Exchange Chairman Richard Grasso, who “saved the stock exchange” and received a huge bonus for his contribution (the equivalent of several thousand average salaries). All he had to do was be there to ring the opening bell on television–the television that, we will see, is the carrier of unfairness and a major cause of Black Swan blindness.
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. We glorify those who left their names in history books at the expense of those contributors about whom our books are silent. We humans are not just a superficial race (this may be curable to some extent); we are a very unfair one.
LIFE IS VERY UNUSUAL
This is a book about uncertainty; to this author, the rare event equals uncertainty. This may seem like a strong statement– that we need to principally study the rare and extreme events in order to figure out common ones–but I will make myself clear as follows. There are two possible ways to approach phenomena. The first is to rule out the extraordinary and focus on the “normal.” The examiner leaves aside “outliers” and
studies ordinary cases. The second approach is to consider that in order to understand a phenomenon, one needs to first consider the extremes–particularly if, like the Black Swan, they carry an extraordinary cumulative effect.
I don’t particularly care about the usual. If you want to get an idea of a friend’s temperament, ethics, and personal elegance, you need to look at him under the tests of severe circumstances, not under the regular rosy glow of daily life. Can you assess the danger a criminal poses by examining only what he does on an ordinary day? Can we understand health without considering wild diseases and epidemics? Indeed the normal is often irrelevant.
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,” particularly with “bell curve” methods of inference that tell you close to nothing. 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.
PLATO AND THE NERD
At the start of the Jewish revolt in the first century of our era, much of the Jews’ anger was caused by the Romans’ insistence on putting a statue of Caligula in their temple in Jerusalem in exchange for placing a statue of the Jewish god Yahweh in Roman temples. The Romans did not realize that what the Jews (and the subsequent Levantine monotheists) meant by god was abstract, all embracing, and had nothing to do with the anthropomorphic, too human representation that Romans had in mind when they said deus. Critically, the Jewish god did not lend himself to symbolic representation. Likewise, what many people commoditize and label as “unknown,” “improbable,” or “uncertain” is not the same thing to me; it is not a concrete and precise category of knowledge, a nerdified field, but its opposite; it is the lack (and limitations) of knowledge. It is the exact contrary of knowledge; one should learn to avoid using terms made for knowledge to describe its opposite.
What I call Platonicity, after the ideas (and personality) of the philosopher Plato, is our tendency to focus on pure and well-defined “forms,” whether objects, like triangles, or social notions, like utopias (societies built according to some blueprint of what “makes sense”), even nationalities. When these ideas and crisp constructs inhabit our minds, we privilege them over other less elegant objects, those with messier and less tractable structures (an idea that I will elaborate progressively throughout this book).
Platonicity is what makes us think that we understand more than we actually do. But this does not happen everywhere. I am not saying that Platonic forms don’t exist. Models and constructions are not always
wrong; they are wrong only in some specific places. The difficulty is that a) you do not know where beforehand (only after the fact), 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 Platonic fold is the explosive boundary where the Platonic mindset enters in contact with the 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.
TOO DULL TO WRITE ABOUT
It was said that the artistic filmmaker Luchino Visconti made sure that when actors pointed at a closed box meant to contain jewels, there were real jewels inside. It could be an effective way to make actors live their part. I think that Visconti’s gesture may also come out of a plain sense of aesthetics and a desire for authenticity–somehow it may not feel right to fool the viewer.
This is an essay expressing a primary idea; it is neither the recycling nor repackaging of other people’s thoughts. An essay is an impulsive meditation, not science reporting. I apologize if I skip a few obvious topics in this book out of the conviction that what is too dull for me to write about might be too dull for the reader to read. (Also, to avoid dullness may help to filter out the nonessential).
Talk is cheap. Someone who took too many philosophy classes in college (or perhaps not enough) might object that the sighting of a Black Swan does not invalidate the theory that all swans are white since such a black bird is not technically a swan since whiteness to him may be the essential property of a swan. Indeed those who read too much Wittgenstein (and writings about comments about Wittgenstein) may be under the impression that language problems are important. They may certainly be important to attain prominence in philosophy departments, but they are something we, practitioners and decision makers in the real world, leave for the weekend. As I explain in the chapter called “The Uncertainty of the Phony,” for all of their intellectual appeal, these niceties have no serious implications Monday to Friday as opposed to more substantial (but neglected) matters. People in the classroom, not having faced many true situations of decision making under uncertainty, do not realize what is important and what is not–even those who are scholars of uncertainty (or particularly those who are scholars of uncertainty). What I call the practice of uncertainty can be piracy, commodity speculation, professional gambling, working in some branches of the Mafia, or just plain serial entrepreneurship. Thus I rail against “sterile skepticism,” the kind we can do nothing about, and against the exceedingly theoretical language problems that have made much of modern philosophy largely irrelevant to what is derisively called the “general public.” (In the past, for better or worse, those rare philosophers and thinkers who were not self-standing depended on a patron’s support. Today academics in abstract disciplines depend on one another’s opinion, without external checks, with the severe occasional pathological result of turning their pursuits into insular prowess-showing contests. Whatever the shortcomings of the old system, at least it enforced some standard of relevance.)
The philosopher Edna Ullmann-Margalit detected an inconsistency in this book and asked me to justify the use of the precise metaphor of a Black Swan to describe the unknown, the abstract, and imprecise uncertain– white ravens, pink elephants, or evaporating denizens of a remote planet orbiting Tau Ceti. Indeed, she caught me red handed. There is a contradiction; 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.
THE BOTTOM LINE
The beast in this book is not just the bell curve and the self-deceiving statistician,
nor the Platonified scholar who needs theories to fool himself with. It is the drive to “focus” on what makes sense to us. Living on our planet, today, requires a lot more imagination than we are made to have. We lack imagination and repress it in others.
Note that I am not relying in this book on the beastly method of collecting
selective “corroborating evidence.” For reasons I explain in Chapter
5, I call this overload of examples naïve empiricism–successions of
anecdotes selected to fit a story do not constitute evidence. Anyone looking
for confirmation will find enough of it to deceive himself–and no
doubt his peers.* The Black Swan idea is based on the structure of randomness
in empirical reality.
To summarize: in this (personal) essay, I stick my neck out and make a
claim, against many of our habits of thought, that our world is dominated
by the extreme, the unknown, and the very improbable (improbable
according our current knowledge)–and all the while we spend our time engaged
in small talk, focusing on the known, and the repeated. This implies the need to use the extreme event as a starting point and not treat it as an exception to be pushed under the rug. I also make the bolder (and more annoying) claim that in spite of our progress and the growth in knowledge, or perhaps because of such progress and growth, the future will be increasingly less predictable, while both human nature and social “science” seem to conspire to hide the idea from us.
* It is also naïve empiricism to provide, in support of some argument, series of eloquent confirmatory quotes by dead authorities. By searching, you can always find someone who made a well-sounding statement that confirms your point of view–and, on every topic, it is possible to find another dead thinker who said the exact opposite. Almost all of my non—Yogi Berra quotes are from people I disagree with.
Chapters Map
The sequence of this book follows a simple logic; it flows from what can
be labeled purely literary (in subject and treatment) to what can be
deemed entirely scientific (in subject, though not in treatment). Psychology
will be mostly present in Part One and in the early part of Part Two; business
and natural science will be dealt with mostly in the second half of Part
Two and in Part Three. Part One, “Umberto Eco’s Antilibrary,” is mostly
about how we perceive historical and current events and what distortions
are present in such perception. Part Two, “We Just Can’ t Predict,” is
about our errors in dealing with the future and the unadvertised limitations
of some “sciences”–and what to do about these limitations. Part Three, “Those Gray Swans of Extremistan,” goes deeper into the topic of extreme events, explains how the bell curve (that great intellectual fraud) is generated, and reviews the ideas in the natural and social sciences loosely lumped under the label “complexity.” Part Four, “The End,” will be very short.
I derived an unexpected amount of enjoyment writing this book–in fact,
it just wrote itself–and I hope that the reader will experience the same. I
confess that I got hooked on this withdrawal into pure ideas after the constraints
of an active and transactional life. After this book is published, my
aim is to spend time away from the clutter of public activities in order to
think about my philosophical-scientific idea in total tranquillity.
About the Author
Taleb’s books have been published in forty-one languages. --This text refers to the paperback edition.
Amazon.com Review
Guest Reviewer: Chris Anderson
Chris Anderson is editor-in-chief of Wired magazine and the author of The Long Tail: Why the Future of Business Is Selling Less of More.
Four hundred years ago, Francis Bacon warned that our minds are wired to deceive us. "Beware the fallacies into which undisciplined thinkers most easily fall--they are the real distorting prisms of human nature." Chief among them: "Assuming more order than exists in chaotic nature." Now consider the typical stock market report: "Today investors bid shares down out of concern over Iranian oil production." Sigh. We're still doing it.
Our brains are wired for narrative, not statistical uncertainty. And so we tell ourselves simple stories to explain complex thing we don't--and, most importantly, can't--know. The truth is that we have no idea why stock markets go up or down on any given day, and whatever reason we give is sure to be grossly simplified, if not flat out wrong.
Nassim Nicholas Taleb first made this argument in Fooled by Randomness, an engaging look at the history and reasons for our predilection for self-deception when it comes to statistics. Now, in The Black Swan: the Impact of the Highly Improbable, he focuses on that most dismal of sciences, predicting the future. Forecasting is not just at the heart of Wall Street, but its something each of us does every time we make an insurance payment or strap on a seat belt.
The problem, Nassim explains, is that we place too much weight on the odds that past events will repeat (diligently trying to follow the path of the "millionaire next door," when unrepeatable chance is a better explanation). Instead, the really important events are rare and unpredictable. He calls them Black Swans, which is a reference to a 17th century philosophical thought experiment. In Europe all anyone had ever seen were white swans; indeed, "all swans are white" had long been used as the standard example of a scientific truth. So what was the chance of seeing a black one? Impossible to calculate, or at least they were until 1697, when explorers found Cygnus atratus in Australia.
Nassim argues that most of the really big events in our world are rare and unpredictable, and thus trying to extract generalizable stories to explain them may be emotionally satisfying, but it's practically useless. September 11th is one such example, and stock market crashes are another. Or, as he puts it, "History does not crawl, it jumps." Our assumptions grow out of the bell-curve predictability of what he calls "Mediocristan," while our world is really shaped by the wild powerlaw swings of "Extremistan."
In full disclosure, I'm a long admirer of Taleb's work and a few of my comments on drafts found their way into the book. I, too, look at the world through the powerlaw lens, and I too find that it reveals how many of our assumptions are wrong. But Taleb takes this to a new level with a delightful romp through history, economics, and the frailties of human nature. --Chris Anderson
From Booklist
Copyright © American Library Association. All rights reserved --This text refers to the hardcover edition.
Product details
- ASIN : B00139XTG4
- Publisher : Random House; 2nd edition (May 4, 2010)
- Publication date : May 4, 2010
- Language : English
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- Print length : 678 pages
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About the author

Nassim Nicholas Taleb spent more than two decades as a risk taker before becoming a full-time essayist and scholar focusing on practical, philosophical, and mathematical problems with chance, luck, and probability. His focus in on how different systems handle disorder.
He now spends most of his time in the intense seclusion of his study, or as a flâneur meditating in cafés. In addition to his life as a trader he spent several years as an academic researcher (12 years as Distinguished Professor at New York University's School of Engineering, Dean's Professor at U. Mass Amherst).
He is the author of the Incerto (latin for uncertainty), accessible in any order (Skin in the Game, Antifragile, The Black Swan, The Bed of Procrustes, and Fooled by Randomness) plus a technical version, The Technical Incerto (Statistical Consequences of Fat Tails). Taleb has also published close to 55 academic and scholarly papers as a backup, technical footnotes to the Incerto in topics ranging from Statistical Physics and Quantitative Finance to Genetics and International affairs. The Incerto has more than 200 translations in 41 languages.
Taleb believes that prizes, honorary degrees, awards, and ceremonialism debase knowledge by turning it into a spectator sport.
""Imagine someone with the erudition of Pico de la Mirandola, the skepticism of Montaigne, solid mathematical training, a restless globetrotter, polyglot, enjoyer of fine wines, specialist of financial derivatives, irrepressible reader, and irascible to the point of readily slapping a disciple." La Tribune (Paris)
A giant of Mediterranean thought ... Now the hottest thinker in the world", London Times
"The most prophetic voice of all" GQ
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a black swan is a highly improbable event of extreme impact that appears obvious and explainable in hindsight. psychological tendencies blind us both before and after the appearance of the black swan, making the black swan hard to predict beforehand, yet making it appear plausible through our rationalizations afterward. this is a story about human limitations in interpreting information; this is a story about epistemology.
as an example of a black swan, consider the death of a chicken which has been consistently fed every day by a farmer, viewed from the perspective of the doomed fowl. (those familiar with philosophy will recognize this example as russell's chicken.) taleb repeatedly reminds the reader that black swans are not objective events and care should be taken to consider who is the "sucker" when discussing black swans. death by the farmer's hands may come as a complete shock to the chicken based on the chicken's observations every single day of its life, but the wringing of the chicken's neck is not at all surprising from the farmer's perspective.
taleb attempts to make the concept easier for a wide audience to understand through the use of the metaphor of mediocristan and extremistan. roughly speaking, in mediocristan, deviations from the average are not large enough to seriously impact the average when notable deviations do appear in new data. in extremistan, the deviations from the average are large enough for a small number of sizable new measurements, even a single one (the black swan), to significantly skew the average. the measured heights of a population is a topic that belongs in mediocristan, while the wealth of that same population belongs in extremistan. in more formal language, mediocristan is the realm governed by normal gaussian probability distributions and the results that come from using bell curves, while such mathematical tools fail in extremistan. it is the use of tools from mediocristan when one is really dealing with a situation in extremistan that causes blindness to black swans. it is the chicken's belief that each day's events couldn't diverge too much from the uneventful past that caused the chicken to so completely misjudge the farmer's benevolence.
the black swan plays a huge role in the financial markets, where fortunes are won or lost by the appearance of statistical outliers. wall street has an entire army of financial analysts and programmers whose work depends on a foundation from mediocristan. economists and finance professors are in the same boat. yet, empirical data doesn't seem to support the hypothesis that these tools are even appropriate in this setting. (mandelbrot does an excellent job explaining why these tools are inappropriate in part one of his book "the misbehavior of markets" if you're not convinced by taleb's presentation; i read mandelbrot before taleb so i was already familiar with the message going in.) it seems remarkable and absurd to me that so many people can ignore the empirical data and just go about their affairs in the dark like this, especially when they are surrounded by this data every single day at work. however, as upton sinclair wrote, "it is difficult to get a man to understand something, when his salary depends upon his not understanding it."
taleb deserves credit for attempting to get more people to open their minds to the existence of black swans and to protect themselves from these events as best they can. where he goes wrong is that he overreaches. taleb relates black swans to almost every subject under the sun, and while the connecting of the dots is interesting, frankly, this enterprise just doesn't seem ready for prime time. it also doesn't help that taleb seems to misunderstand some of the topics he writes about, especially when he talks about math and science.
for example, on p.55 taleb writes that "mathematicians will try to convince you that their science is useful to society by pointing out instances where it proved helpful, not those where it was a waste of time...owing to the highly unempirical nature of elegant mathematical theories." this is simply an erroneous understanding of mathematicians. first and foremost, mathematicians are interested in the beauty of mathematics. applications to society are secondary, and the pure mathematicians don't even consider the social utility of their work at all. see for example g.h. hardy's book "a mathematician's apology" that is representative of this attitude. imagine my surprise when taleb later quotes from hardy's very book on p.240 to contradict himself 185 pages earlier! another example, on p.287 taleb writes that he finds "it ludicrous to present the uncertainty principle as having anything to do with uncertainty" since taleb believes the future positions of subatomic particles are gaussian in nature and as such average out by the law of large numbers. he further writes, "can someone explain to me why i should care about subatomic particles that, anyway, converge to a gaussian?" it doesn't seem like taleb really understands quantum mechanics enough to be writing about it. in reply to taleb's question, i offer the phenomenon of quantum tunneling as a counter-intuitive example with both theoretical appeal as well as useful engineering applications.
in attempting to make his point of view seem grander and more original, taleb also changes the names of various well-known concepts. for example, the aforementioned heisenberg uncertainty principle is called the "greater uncertainty principle" in taleb's book. in place of "survivorship bias," which is quite standard terminology, taleb instead writes of the "casanova effect" and "silent evidence." readers familiar with physics will also recognize the "anthropic principle" from cosmology when taleb discusses casanova. it is helpful to use a different label when there's a significant twist or other insight, but new labels are more harmful than not when the underlying concepts are essentially unchanged.
overall, taleb is a colorful author whose personality is intimately woven into the narrative. this has the effect of making the book easy to read while also exposing various weaknesses when taleb walks into territory he's under-prepared to travel. however, these criticisms are not enough to negate the greater message. "the black swan" and his earlier book "fooled by randomness" clearly demonstrate that taleb understands the main problem with treating the world as if it were entirely tameable with our comfortable statistical toolkit. nevertheless, focusing on the author's personality is what draws many readers away from the real message of the book, and taleb carries some of the blame for that, though not all of it. this missing of the mark also shows up in the recent "occupy wall street" protest movement. wall street professionals can make a lot of money using a faulty understanding of how the financial markets work, underestimating risk, yet get the american taxpayers to socialize the losses when the black swan does show up. this is fundamentally unjust, but that message too is similarly pitifully lost in the focus on the protestors themselves.
***
In “Part 1″, there is an interesting anecdote, that sets the tone for the rest of the book, about Umberto Eco’s library. Eco is a highly respected semiotician, essayist, philosopher, literary critic, and novelist. And he owns a library that reportedly contains over 30,000 books. He isn’t, however, known for being boastful about it. When guests come over to his house he usually gets one of two reactions. The vast majority of guests, according to Taleb, respond with something similar to the following “Wow! Signore professore dottore Eco, what a library you have! How many of these books have you read?” And then there are the people who get the point: “A large personal library is not an ego-boosting appendage, but a research tool.” The point of this story emphasizes a critical theme throughout the book, i.e., we overemphasize what we think we know and downplay how ignorant we really are. An antilibrary (representing things we don’t know) is more valuable to us than are the books we’ve already read (or things we already know).
Early on we also learn that Taleb classifies himself as a skeptical empiricist. And, you may be wondering, what exactly is a skeptical empiricist? “Let us call 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 enhancement device — a skeptical empiricist.”
For further clarification, empiricism is a theory of knowledge, which asserts that knowledge can only be ascertained exclusively via sensory experience. And skepticism, it’s important to note, comes in many different varieties. Taleb traces his skepticism back to its roots in the Pyrrhonian tradition. However, he is also fond of “Sextus the (Alas) Empirical” (better known as Sextus Empiricus) and David Hume. Taleb, however, is not entirely devoted to promoting rampant philosophical skepticism. He simply wants to be “a practitioner whose principal aim is to not be a sucker in things that matter, period.”
Largely, then, this book is about epistemology, also known as the study of human knowledge. What can we truly know? And what are the limits of human knowledge? I think Taleb focuses one of the fundamental problems of philosophy, which the German Philosopher, Immanuel Kant, also wrote extensively about (although from a different perspective), i.e., what are the limits of our reason? Kant realized that examining human reason is inherently problematic, namely because when humans try to examine metaphysical or even epistemological issues we can never do so outside the bounds of our own reasoning ability. We’re suckers, blinded to reality, because we are trapped in our own human minds!
Throughout the book, Taleb picks on the great thinker of antiquity, Plato. Taleb, however, also gives the impression that he is quite fond of the great philosopher too, despite his shortcomings. What Taleb calls Platonicity is the obsessive focus on the pure and well-defined aspects of reality, while ignoring the messier parts and less tractable structure that exist in reality. Perhaps an example of Platonicity might help clear up this distinction. A Platonified economist, for example, thinks that he can accurately model something as complex as the macroeconomy. Using foolish assumptions, the Platonified economist tries to assume conditions of reality (that don’t really exist) in order to fit her model rather than accepting that reality is far messier than the model. One who is a Platonic thinker, then, could also be classified as a nerd. Nerds, according to Taleb, believe that what cannot be Platonized and formally studied doesn’t exist, or isn’t worth considering.
One interesting example of Platonicity provided in the book pertains to breast milk. At one point in time, Platonified scientists believed that they had created a formula for a mother’s “milk” that was perfectly identical to a mother’s real milk. Alas, they could then manufacture this milk in a laboratory and make financial gains from it! Despite what appeared to be an identical chemical composition, there was empirical evidence showing increases in various cancers and other health problems in children who drank this fake-milk. Was this a coincidence? Perhaps. But it also could be that the Platonified scientific formula for milk was missing some crucial element of the milk that we cannot see!
Platoncitity can further be generalized as follows, “it is our tendency to mistake the map for the territory, to focus on well and pure defined “forms,” whether objects, like triangles, or social notions, like utopias (societies built according to some blueprint of what “makes sense”), even nationalities. “ In other words, a Platonified nerd is someone who visits New York City, but has with a map of San Francisco with them, and yet still thinks that their incorrect map will somehow help them. Taleb believes that we have a built-in tendency to trust our maps, even when they’re for the wrong location. Furthermore, we fail to realize that no map is often better than the wrong map.
The trouble is, according to Taleb, that we encourage nerd knowledge over other forms of knowledge, especially in academia. Nerds focus on what fits in the box, even if the most important things in life fall outside the box. The nerd simply neglects the antilibrary.
At one point in history it was considered “knowledge” that all swans are white. This was stated as a scientific fact because no black swans had ever been observed. However, this line of reasoning presents an interesting philosophical problem, i.e., “The Problem of Induction“. And the great philosopher, David Hume, wrote in great detail about this problem, although he wasn’t the first to do so.
In order to further understand this problem let’s consider the following classic inference that led to the problem: All swans we have seen are white, and therefore all swans are white. The problem is that even the observation of a billion white swans does not make that statement unequivocally true. This is because black swans may exist, we just haven’t observed one yet. We have obviously since discovered that black swans do indeed exist. What can we learn here? An over reliance on our observations can lead us astray.
Still confused? Then, let’s consider what we can we learn from a turkey, which hopefully provides further clarification. The uberphilsopher Bertrand Russell illustrated this turkey example quite well.
Consider a turkey that is fed every day. Every single feeding will firm up the bird’s belief that it is the general rule of life to be fed every day by friendly members of the human race “looking out for its best interests,” as a politician would say. On the afternoon of the Wednesday before Thanksgiving it will incur a revision of belief.
Taleb, then, states, “The turkey problem can be generalized to any situation where the same hand that feeds you can be the one that wrings your neck.” Probably the most important point to note from the turkey is that our perceived knowledge from learning backwards may not just be worthless, but rather, it may actually be creating negative value by blinding us to future events with dire consequences.
As such, it’s certainly important to note that a series of corroborative facts is not necessarily evidence. But where does that leave us in terms of how we can know things? Well, Taleb further argues that we can know things that are wrong, but not necessarily correct (think Karl Popper’s falsifiability). This he calls negative empiricism. The sight of one black swan, then, can certify that not all swans are white, but the observation of a trillion white swans doesn’t give us any certifiable claims.
Strangely, however, we humans have a tendency to ignore the possibility of silent evidence and look to confirm our theories, rather than challenge them.
One of the central tenets of the book is the distinction between “Mediocristan” and “Extremistan”, which are terms for different types of domains.. When you’re dealing with a domain that’s in Mediocristan, then your data will fit a Gaussian distribution (a bell curve). In Extremistan, however, you’re not dealing with data that is normally distributed. A single observation in Extremistan can have an incredible impact on the total. Think of the following example. If we took the average height of a million humans and then, say, added the tallest person in the world to the sample, the average wouldn’t be affected in a significant way. Height is normally distributed. Now imagine we did the same thing with wealth. Adding the richest person in the world to a sample of a million people would greatly affect the average. The distribution of height, then, falls within the domain of Mediocristan and things like wealth in Extremistan.
One of Taleb’s main points is that we often try to use the model that works in Mediocristan in Extremistan. Taleb states, however, that almost all social matters belong to Extremistan and that the casino is the only human venture where probabilities are known and almost computable. But even casinos aren’t immune to Extremistan — think about it.
Another interesting concept from the book is the “toxicity of knowledge.” Too much information can be toxic especially when it inflates the confidence in an “expert” prediction. More information is not always better; more is sometimes better, but not always. And we often blindly listen to experts in fields where there can be no experts.
If you follow Taleb’s argument, then reading the newspaper may actually decrease, rather than increase, your knowledge of the world. The Black Swan, however, will not only increase your understanding of the world, but it will make you wiser as well. For that reason, I can assure you that I will be rereading this book yet again at some point in the future.
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I am blessed and live a generally good life. Yet, the profound wisdom that NNT imparts in this book is not just relevant to any random process (like the investment industry where I make my living), but the life itself that we all live, with its joys, heartbreaks and uncertainties. We live in an uncertain world. And Taleb not only makes us appreciate the black swans that we tend to overlook at our own peril, he shows us the phenomena that hide in plain sight (the silent evidence, the narrative fallacy, survivorship bias etc.). He goes into the hardly enviable mental software that runs us imperfectly in the modern world. Just being aware of our imperfections allows us a leg up in a world full of people having little clue about the wisdom in this book. We cease to be the haughty ignoramuses, and transform into the more humble ignoramuses, making do the best we can while working with our imperfect selves.
The Black Swan is not an easy read. It also requires (in my humble opinion) some mental readiness to absorb the lessons that come in rapid succession. I was not ready to read it 20 years ago, even 15 years ago. Stochasticity and black swans were was not the words my younger self was ready to understand in earnest. It was with the passage of time, and my increasing alarm at finding the world filled with unexpected outcomes that transformed me to be the student who was ready for the master.
The Black Swan is therefore one of the most important books I have ever read. It is transformational. Along with the rest of the books in the Incerto series, The Black Swan awakens us to a completely different world; which surprisingly, happens to be the very same world where we were living in before. Read it today, or read it when you are ready for it. It will change your life for the better, as it has changed mine.

