The Black Swan Read online

  PRAISE FOR THE BLACK SWAN

  “Taleb not only has an explanation for [the crisis], he saw it coming.”

  —DAVID BROOKS, The New York Times

  “The hottest thinker in the world.”

  —BRYAN APPLEYARD, The Sunday Times (London)

  “Taleb is the real thing. [He] rightly understands that what’s brought the global banking system to its knees isn’t simply greed or wickedness but … intellectual hubris.

  —JOHN GRAY, author of Straw Dogs (as quoted in GQ)

  “The new sage … The trader turned author has emerged as the guru of the global financial meltdown. Not only is he riding high in the bestseller lists, his theory of black swan events has become the most seductive guide to our uncertain times.”

  —The Observer

  “[Taleb writes] in a style that owes as much to Stephen Colbert as it does to Michel de Montaigne.”

  —The Wall Street Journal

  “[This] is the lesson of Nassim Taleb … and also the lesson of our volatile times. There is more courage and heroism in defying the human impulse, in taking the purposeful and painful steps to prepare for the unimaginable.”

  —MALCOLM GLADWELL, author of The Tipping Point

  “[Taleb is] a genuinely significant philosopher … someone who is able to change the way we view the structure of the world through the strength, originality and veracity of his ideas alone.”

  —GQ

  “Long-standing critics of risk-modelling, such as … Taleb … are now hailed as seers.”

  —The Economist

  “A provocative macro-trend tome in the tradition of … The Tipping Point.”

  —Time

  “An eye-opening book, one that teases our intelligence … He is after big game, and he bags it.”

  —ROGER LOWENSTEIN, Portfolio

  “Erudite advice … The Black Swan is a richly enjoyable read with an important message.”

  —Business Week

  “Engrossing … a lively, sassy study of what’s not known.”

  —FRANK WILSON, The Philadelphia Inquirer

  “[An] engaging new book … The Black Swan has appealing cheek and admirable ambition.”

  —The New York Times Book Review

  “A rigorous meditation on the modern world.”

  —The Daily Telegraph (London)

  “Funny, quirky and thought-provoking … [Taleb is] engaging, lively and intelligent.”

  —The Sunday Times (London)

  ALSO BY NASSIM NICHOLAS TALEB

  Fooled by Randomness

  To Benoît Mandelbrot,

  a Greek among Romans

  CONTENTS

  Prologue

  On the Plumage of Birds

  What You Do Not Know

  Experts and “Empty Suits”

  Learning to Learn

  A New Kind of Ingratitude

  Life Is Very Unusual

  Plato and the Nerd

  Too Dull to Write About

  The Bottom Line

  Chapters Map

  PART ONE: UMBERTO ECO’S ANTILIBRARY, OR HOW WE SEEK VALIDATION

  Chapter 1: The Apprenticeship of an Empirical Skeptic

  Anatomy of a Black Swan

  On Walking Walks

  “Paradise” Evaporated

  The Starred Night

  History and the Triplet of Opacity

  Nobody Knows What’s Going On

  History Does Not Crawl, It Jumps

  Dear Diary: On History Running Backward

  Education in a Taxicab

  Clusters

  Where Is the Show?

  8¾ Lbs Later

  The Four-Letter Word of Independence

  Limousine Philosopher

  Chapter 2: Yevgenia’s Black Swan

  Chapter 3: The Speculator and the Prostitute

  The Best (Worst) Advice

  Beware the Scalable

  The Advent of Scalability

  Scalability and Globalization

  Travels Inside Mediocristan

  The Strange Country of Extremistan

  Extremistan and Knowledge

  Wild and Mild

  The Tyranny of the Accident

  Chapter 4: One Thousand and One Days, or How Not to Be a Sucker

  How to Learn from the Turkey

  Trained to Be Dull

  A Black Swan Is Relative to Knowledge

  A Brief History of the Black Swan Problem

  Sextus the (Alas) Empirical

  Algazel

  The Skeptic, Friend of Religion

  I Don’t Want to Be a Turkey

  They Want to Live in Mediocristan

  Chapter 5: Confirmation Shmonfirmation!

  Zoogles Are Not All Boogles

  Evidence

  Negative Empiricism

  Counting to Three

  Saw Another Red Mini!

  Not Everything

  Back to Mediocristan

  Chapter 6: The Narrative Fallacy

  On the Causes of My Rejection of Causes

  Splitting Brains

  A Little More Dopamine

  Andrey Nikolayevich’s Rule

  A Better Way to Die

  Remembrance of Things Not Quite Past

  The Madman’s Narrative

  Narrative and Therapy

  To Be Wrong with Infinite Precision

  Dispassionate Science

  The Sensational and the Black Swan

  Black Swan Blindness

  The Pull of the Sensational

  The Shortcuts

  Beware the Brain

  How to Avert the Narrative Fallacy

  Chapter 7: Living in the Antechamber of Hope

  Peer Cruelty

  Where the Relevant Is the Sensational

  Nonlinearities

  Process over Results

  Human Nature, Happiness, and Lumpy Rewards

  The Antechamber of Hope

  Inebriated by Hope

  The Sweet Trap of Anticipation

  When You Need the Bastiani Fortress

  El desierto de los tártaros

  Bleed or Blowup

  Chapter 8: Giacomo Casanova’s Unfailing Luck: The Problem of Silent Evidence

  The Story of the Drowned Worshippers

  The Cemetery of Letters

  How to Become a Millionaire in Ten Steps

  A Health Club for Rats

  Vicious Bias

  More Hidden Applications

  The Evolution of the Swimmer’s Body

  What You See and What You Don’t See

  Doctors

  The Teflon-style Protection of Giacomo Casanova

  “I Am a Risk Taker”

  I Am a Black Swan: The Anthropic Bias

  The Cosmetic Because

  Chapter 9: The Ludic Fallacy, or The Uncertainty of the Nerd

  Fat Tony

  Non-Brooklyn John

  Lunch at Lake Como

  The Uncertainty of the Nerd

  Gambling with the Wrong Dice

  Wrapping Up Part One

  The Cosmetic Rises to the Surface

  Distance from Primates

  PART TWO: WE JUST CAN’T PREDICT

  From Yogi Berra to Henri Poincaré

  Chapter 10: The Scandal of Prediction

  On the Vagueness of Catherine’s Lover Count

  Black Swan Blindness Redux

  Guessing and Predicting

  Information Is Bad for Knowledge

  The Expert Problem, or the Tragedy of the Empty Suit

  What Moves and What Does Not Move

  How to Have the Last Laugh

  Events Are Outlandish

  Herding Like Cattle

  I Was “Almost” Right

  Reality
? What For?

  “Other Than That,” It Was Okay

  The Beauty of Technology: Excel Spreadsheets

  The Character of Prediction Errors

  Don’t Cross a River if It Is (on Average) Four Feet Deep

  Get Another Job

  At JFK

  Chapter 11: How to Look for Bird Poop

  How to Look for Bird Poop

  Inadvertent Discoveries

  A Solution Waiting for a Problem

  Keep Searching

  How to Predict Your Predictions!

  The Nth Billiard Ball

  Third Republic–Style Decorum

  The Three Body Problem

  They Still Ignore Hayek

  How Not to Be a Nerd

  Academic Libertarianism

  Prediction and Free Will

  The Grueness of Emerald

  That Great Anticipation Machine

  Chapter 12: Epistemocracy, a Dream

  Monsieur de Montaigne, Epistemocrat

  Epistemocracy

  The Past’s Past, and the Past’s Future

  Prediction, Misprediction, and Happiness

  Helenus and the Reverse Prophecies

  The Melting Ice Cube

  Once Again, Incomplete Information

  What They Call Knowledge

  Chapter 13: Appelles the Painter, or What Do You Do if You Cannot Predict?

  Advice Is Cheap, Very Cheap

  Being a Fool in the Right Places

  Be Prepared

  The Idea of Positive Accident

  Volatility and Risk of Black Swan

  Barbell Strategy

  “Nobody Knows Anything”

  The Great Asymmetry

  PART THREE: THOSE GRAY SWANS OF EXTREMISTAN

  Chapter 14: From Mediocristan to Extremistan, and Back

  The World Is Unfair

  The Matthew Effect

  Lingua Franca

  Ideas and Contagions

  Nobody Is Safe in Extremistan

  A Brooklyn Frenchman

  The Long Tail

  Naïve Globalization

  Reversals Away from Extremistan

  Chapter 15: The Bell Curve, That Great Intellectual Fraud

  The Gaussian and the Mandelbrotian

  The Increase in the Decrease

  The Mandelbrotian

  What to Remember

  Inequality

  Extremistan and the 80/20 Rule

  Grass and Trees

  How Coffee Drinking Can Be Safe

  Love of Certainties

  How to Cause Catastrophes

  Quételet’s Average Monster

  Golden Mediocrity

  God’s Error

  Poincaré to the Rescue

  Eliminating Unfair Influence

  “The Greeks Would Have Deified It”

  “Yes/No” Only Please

  A (Literary) Thought Experiment on Where the Bell Curve Comes From

  Those Comforting Assumptions

  “The Ubiquity of the Gaussian”

  Chapter 16: The Aesthetics of Randomness

  The Poet of Randomness

  The Platonicity of Triangles

  The Geometry of Nature

  Fractality

  A Visual Approach to Extremistan/Mediocristan

  Pearls to Swine

  The Logic of Fractal Randomness (with a Warning)

  The Problem of the Upper Bound

  Beware the Precision

  The Water Puddle Revisited

  From Representation to Reality

  Once Again, Beware the Forecasters

  Once Again, a Happy Solution

  Where Is the Gray Swan?

  Chapter 17: Locke’s Madmen, or Bell Curves in the Wrong Places

  Only Fifty Years

  The Clerks’ Betrayal

  Anyone Can Become President

  More Horror

  Confirmation

  It Was Just a Black Swan

  How to “Prove” Things

  Chapter 18: The Uncertainty of the Phony

  Ludic Fallacy Redux

  Find the Phony

  Can Philosophers Be Dangerous to Society?

  The Problem of Practice

  How Many Wittgensteins Can Dance on the Head of a Pin?

  Where Is Popper When You Need Him?

  The Bishop and the Analyst

  Easier Than You Think: The Problem of Decision Under Skepticism

  PART FOUR: THE END

  Chapter 19: Half and Half, or How to Get Even with the Black Swan

  When Missing a Train Is Painless

  The End

  EPILOGUE: YEVGENIA’S WHITE SWANS

  GLOSSARY

  POSTSCRIPT ESSAY: ON ROBUSTNESS AND FRAGILITY, DEEPER PHILOSOPHICAL AND EMPIRICAL REFLECTIONS

  I—Learning from Mother Nature, the Oldest and the Wisest

  On Slow but Long Walks

  My Mistakes

  Robustness and Fragility

  Redundancy as Insurance

  Big is Ugly—and Fragile

  Climate Change and “Too Big” Polluters

  Species Density

  The Other Types of Redundancy

  Distinctions Without a Difference, Differences Without a Distinction

  A Society Robust to Error

  II—Why I Do All This Walking, or How Systems Become Fragile

  Another Few Barbells

  Beware Manufactured Stability

  III—Margaritas Ante Porcos

  Main Errors in Understanding the Message

  How to Expunge One’s Crimes

  A Desert Crossing

  IV—Asperger and the Ontological Black Swan

  Asperger Probability

  Future Blindness Redux

  Probability has to be Subjective

  Probability on a Thermometer

  V—(Perhaps) the Most Useful Problem in the History of Modern Philosophy

  Living in Two Dimensions

  The Dependence on Theory for Rare Events

  Epimenides the Cretan

  An Undecidability Theorem

  It’s the Consequences …

  From Reality to Representation

  Proof in the Flesh

  Fallacy of the Single Event Probability

  Psychology of Perception of Deviations

  The Problem of Induction and Causation in the Complex Domain

  Induction

  Driving the School Bus Blindfolded

  VI—The Fourth Quadrant, the Solution to that Most Useful of Problems

  David Freedman, RIP

  Decisions

  The Fourth Quadrant, a Map

  VII—What to Do with the Fourth Quadrant

  Not Using the Wrong Map: The Notion of Iatrogenics

  Negative Advice

  Iatrogenics and The Nihilism Label

  Phronetic Rules: What is Wise to do (or not do) in Real Life to Mitigate the Fourth Quadrant if you can’t Barbell?

  VIII—The Ten Principles for a Black-Swan-Robust Society

  IX—Amor Fati: How to Become Indestructible

  Nihil Perditi

  NOTES

  BIBLIOGRAPHY

  ACKNOWLEDGMENTS FOR THE FIRST EDITION

  NOTE TO THE SECOND EDITION

  In order to preserve the integrity of the original text, I have limited the updating of the current edition to a small number of footnotes. I added a long Postscript essay, going deeper into philosophical and empirical discussions of the subject and addressing some misunderstandings of the concept of the Black Swan that cropped up after the initial publication of the book.

  PROLOGUE

  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 (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.

  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 consequences of the rise of Islamic fundamentalism? How about the effect of 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.