The concept of a Black Swan event is not new–although tackling it as the subject of an entire book is. There is a good reason for this: How do we predict the unpredictable?
911 to most of us was a completely unexpected highly improbable event. Katrina was a similarly unexpected event. The market
crash of 2008 is another example. But to a very small group of people specialized in areas close to the events none of these were unexpected or improbable.
This circles us back to the original question: How do we predict the unpredictable?
To prepare for this summary I propose some light mental stretching–gymnastics may be required. Then put on your brain unitard and get ready for…
CROWDSOURCED READING PROJECT #13
The Black Swan
SUMMARIZED BY Bernardo
Nassim Taleb’s book begins with the story about the discovery of the first black swan in Australia. Up until that point in history, Europeans had never seen a black swan, thus they believed all swans were white, and then all of the sudden, there was this black bird that was also a swan, but of the “wrong” colour.
This analogy introduces the concept of Taleb’s Black Swan: unexpected, highly improbable events that have three main properties: 1. They are unpredictable because they lie outside the scope of our predictions and knowledge; 2. They have huge impact; and 3. Every time we come across an extremely unpredictable event like the Black Swan, we tend to rationalise and overanalyze it to the point that we think it was rather predictable.
After explaining a brief outline of the problem of the Black Swan, Taleb embarks on a comprehensive philosophical diatribe, with the purpose of defying conventional wisdom and our way of thinking. The author does this by skillfully dissecting our though process and breaking down his argument to deal with knowledge, prediction, and the role of talent and chance in the success of people.
The conclusion that you might reach after reading this book is that we humans aren’t as extraordinary as we might think. There’s nothing special about our species.
Black Swans and Knowledge
“Knowledge, even when it is exact, does not often lead to appropriate actions because we tend to forget what we know, or forget how to process it properly if we do not pay attention, even when we are experts”. The core of this book is knowledge, and the distorted belief that we have about it. “Epistemic arrogance” is an impediment associated with our handling of knowledge that the author describes in the book. It basically represents the belief that we know more than we actually do, and the arrogance steps in when, because of this epistemic arrogance, we’re unable to utter the words “I don’t know”.
An important part of the book is dedicated to the treatment of history and the way we study it. Basically, the author explains “The Triplet of Opacity”, which identifies the main three problems we encounter when we come into contact with history. These are:
- The illusion of understanding what’s really going on, when in reality we live in a more complicated and complex world than we actually realize.
- The retrospective distortion: how we’re able to assess matters only after they’ve happened.
- The over-evaluation of information – our obsession with categorizing facts and pieces of information.
These problems also have a lot to do with how we deal with knowledge in general. For instance, our obsession with categorizing, which can also be called “Platonification”, leads us to compulsively simplify facts by assigning categories, or tags, to them. In real life, however, we need this in order to make information consumption more organized; the real problem is when these categories are deemed definitive in our mind, in other words when we remain narrow-minded when exposed to ideas that defy our preconceptions.
The Platonification compulsion is directly related to another mental impediment: the narrative fallacy, or in simpler terms, our vulnerability to compact stories when dealing with knowledge. We have a strong predilection for explanations and causal links – Mother Nature gave us this defect because it helps things make more sense.
To further understand our inability to inability to generalize properties of the world by making single observations, a concept called “knowledge induction”, Taleb presents us the story of the turkey before Thanksgiving – this problem was originally proposed by the philosopher Bertrand Russell under the name of problem of induction. Imagine a turkey that is fed every day; every single feeding will confirm the bird’s belief that it’s the general rule of life to be fed every day by a friendly human. But then the day before Thanksgiving, something unexpected will happen to the turkey – something that the bird wasn’t expecting at all.
To close this short section about knowledge, here’s a summary: the things we don’t know are ignored, thus we never see what’s on the hidden side of things; that’s also why we Platonify, because we like schemes and well-organised knowledge, which leads us to favour our confirmation bias. We have a lot of respect for what has happened, but not for what could have happened, that defines us as shallow and superficial.
Black Swans and Prediction
Taleb cleverly comes up with this idea of two different worlds coexisting at this point in time: Mediocristan and Extremistan. The key differences between these two worlds are summarized as follows: particular events don’t play much individually in Mediocristan, while in Extremistan one single variable can have a disproportionate effect on the rest of the population.
What calls for some thought and insight about this is the fact that our world is, day by day, becoming more and more like Extremistan, where events have radical impact on the world around us. Consider the variable “income”, which belongs to Extremistan; if you get a group of people with rather similar incomes, and then add to that group the wealthiest person living, then that person will end up representing more than 90% of the other’s net worth.
This leads us to the first problem of prediction and Extremistan (our current type of environment). If you try to generalize knowledge, and hence predict what’s in store for us, from observation in Extremistan, you’re going to be in trouble, because it’s simply too random. One single event in Extremistan can change the appearance of your entire outlook, thus ruining your prediction – it boils down to the inability to obtain information accurate enough to make our prediction.
Another problem with us predicting so much is the non-linearity of the world. We can attribute this defect in perception to our education system. We’ve always been taught that in order to learn something, we need to study our way from point A to point B, and progress will be directly related to our studies. However, this is hardly the case; languages are a great example of non-linearity – you can study hard following a linear scheme, and in the meantime experience no progress whatsoever, until one day you start noticing that you can put elaborate thoughts together in the target language. The world is non-linear full stop.
Another flaw within our prediction system is caused by a psychological phenomenon called “anticipated utility”, theorized by Daniel Kahneman. It causes us to fail to predict the outcome of a future event. Taleb in his book illustrates this bias with the story of a man who dreams of getting a new car, and thinks only about how great he’d feel once he gets a hold of this new car; it turns out that after getting the car and driving it for awhile, he no longer feels the same thrill, and forgets that he felt the same way with his first car. It would have cost him much less to stop and reflect on this fact before purchasing the new vehicle. We’re hopeless predictors.
Chance and Talent
The concept of silent evidence is also a fundamental part in this work, because it plays a major role in talent and other people’s success. We tend to look at people who have had success in their ventures and think that it’s been because of their skills or motivation, when in reality the silent evidence argument holds that while there are hundreds of people who have succeeded in something, there are even more who tried and failed, but we don’t see it because they are never accounted for. A great way to work around this problem is to think before we undertake anything about all the people that might have failed in the past but haven’t come forth, therefore remain silent.
A great misconception is the belief that a result will be achieved in a linear way thanks to focused effort – notice the word focused and its relation with the mental impediment of tunneling. The truth is that almost everything we have now, of utility, has been invented by mistake or as a spin-off of other products. A vivid example of this process is the Internet, which was designed by the military for military purposes, and yet it has become something with a dramatic different set of uses.
Taleb opens the third section of the book with the headline “The World Is Unfair”, and goes on to explain why he thinks that way. You see, with his idea of Extremistan, he’s describing a world that is far too random for us to understand, and therefore acquire knowledge from. In this random world “luck” is everything, and not the focus on skills as leading to success. Arbitrary situations and random outcomes explain success and prompt people to obtain superstar status.
Final Words
This philosophical work is attractive because of its practicality. Taleb throughout the book gives the reader modest, yet powerful, suggestions to live in this random world; from shutting down the TV, to minimizing the time you spend reading newspapers, these ideas will surely make you think about your habits and become more aware of them.
Being narrow-minded is a sure way to be fooled by unpredictability. Don’t tunnel into your predictions or even your knowledge. In the book we find the story of the hedgehog and the fox: the hedgehog knows only one thing and lives its life by it, whereas the fox knows many things and remains open-minded, therefore capitalizing on the random events. The moral of the story is to be open-minded and be prepared for whatever it may come, seizing opportunities as they present themselves.
Other suggestions, which are a little more philosophical, include learning to control your decisions by holding your judgement. This has to do with training yourself to use a rational system of thinking, thereby becoming more insightful about your actions and consequences. Leave the more visceral part of your brain for unimportant matters.
An interesting proposal in the book is to arrange our lives in order to increase what the author calls “positive accidents” – the key to being exposed to Black Swans of the positive kind is to collect opportunities around you, simply to reap the benefits of randomness.
And finally, my epiphany moment with this inspiring and thoughtful book: avoid the social pressure to live our lives according to what others expect from us; with the logical result of everlasting unhappiness and discontent, mainly because existence in such conditions becomes painful.