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CHAPTER ONE: 'The Black Swan: The Impact of the Highly Improbable' By NASSIM NICHOLAS TALEB
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?

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 is so silly on so many levels that you can hardly pick it all apart, but let's try:

(1) There are doves and ravens, Caucasians and Negroes, white sheep and black sheep, yet it is outside the realm of expectations that there are black swans to match our white ones? No, Mr. Taleb's central metaphor actually disproves his entire case (we need hardly point out that the fact of black swans has no impact whatsoever). It would be somewhat more accurate to say that if one considers a flock of white swans in the abstract, to the exclusion of all other human knowledge, then a black swan will be surprising. This makes for the perfect ivory tower intellectual exercise, but has nothing to do with human life as it is lived.

(2) As if black swans weren't trivial enough in their own right, the notion that it is the fact that the "significant shocks" in your life may not occur on precisely the schedule you imagined ahead of time that makes them "shocks" is truly inane. Remember the old apocryphal tale about the college president who addresses the incoming class and tells them to look at the student to the left and to the right and recognize that one of the three of you won't finish. Well, he could also tell you that most of you will marry, most have kids, most lose jobs, most move several times, all lose loved ones, many divorce, etc., etc., etc. Is the utter predictability of these life events really outweighed by the shock effect of their not happening at precisely predictable times? Is it not instead the case that the generally predictable and easily anticipated is just shocking to each of us in the particular?

(3) Not only was a terrorist attack along the lines of 9-11 predictable, but was frequently predicted, a staple of fiction, and had even been attempted already. In fact, the most shocking thing about 9-11 in retrospect is just how few people died. Cast yourself back to that day or to discussions of the earlier truck bomb attack and the casualty estimates were in the tens of thousands. It does not in any way cheapen the loss of life to note that we got off pretty easy compared to what we expected.

This raises a set of questions quite different from the ones the author intends:

Examining our actual losses to terrorism(*)--rather than our emotional reactions--might we not say that our level of preparation was reasonable? Mr. Taleb suggests that if we were serious about the risks we'd have hardened the doors of cockpits and, thus, prevented any attacks on 9-11. It's worth noting, first off, that there hadn't been a successful hijacking of an American flight in twenty years, so existing precautions had worked rather well. But, even if we fall with him into the trap of believing that by taking discrete actions we've anticipated the unexpected, we have to ask why he'd stop there. Given that terrorists have more typically attacked with car bombs, truck bombs, explosive belts, etc., what are the similarly basic steps he'd take to protect against the entirely predictable threat of common motor vehicles and ordinary pedestrians? Obviously if he proposed banning motor vehicles we'd grant that he takes the threat of their being used as weapons seriously and following where black swan logic leads him. However, isn't that the problem with the black swan, that it becomes the be all and end all of existence? The existence of the black swan, in this way of thinking, clouds the mind to the far greater prevalence of white swans. One becomes so focussed on a risk that it can never be assessed in relation to the benefits that accrue from treating it as an outlier.

It would be useful here to consider the black swan that never honked. For forty years people anticipated, with various degrees of hysteria, the possibility or even likelihood that the United States and the USSR would engage in a thermonuclear exchange of some intensity or another. And yet, at no time during those years was anyone even minimally prepared for the event. Sure, preparing even inadequately would have required trillions of dollars and untold man hours and material and so on. In retrospect, we have to be thankful that the black swan was largely ignored, because as it turned out, the damage we'd have done ourselves by taking it would have been catastrophic in its own right. It would have made us the sort of military resource-sink that Paul Kennedy fretted about in Rise and Fall of the Great Powers. Instead we mostly went about our lives and the swans kept coming up white.

They usually do. When they don't, we figure out how to deal with the black one, often with little difficulty.



(*) Indeed, does 9-11 even meet the second part of Mr. Taleb's tripartite test? The US economy didn't skip a beat. We fought two rather desultory wars in the Middle East at minimal cost. They're building at the WTC site. The skies are filled with planes. Cory Lidle was able to fly a plane into a NYC building without anyone batting an eyelash. Etc. Where is the extreme impact?

Likewise, we're rebuilding New Orleans, despite Katrina, and the Pacific Rim is populated again. What long term impact do these swans really have?

Here are two really easily imagined black swans that we're all willfully ignoring and it's worth thinking about what you'd do to avoid them: a major earthquake in Los Angeles and a bit of space debris crashing into the Earth.



(Reviewed:)

Grade: (C)

  

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See also:

Economics
Nassim Taleb Links:

    -AUTHOR PAGE: Nassim Nicholas Taleb's Home Page
    -WIKIPEDIA: Nassim Nicholas Taleb
    -
   
-AUDIO TORRENT: The Black Swan
    CHAPTER ONE: 'The Black Swan: The Impact of the Highly Improbable' By NASSIM NICHOLAS TALEB
    -LECTURE: LEARNING TO EXPECT THE UNEXPECTED (Nassim Nicholas Taleb, 4.19.04, Edge)
    -Black swan theory (Wikipedia)
    -PROFILE: Shattering the Bell Curve: The power law rules (DAVID A. SHAYWITZ, April 24, 2007, Online Journal)
    -PROFILE: Chaos is Underrated: In The Black Swan, Taleb excoriates the delusions of economists and their ilk. (Roger Lowenstein, May 2007, Portfolio)
    -ESSAY: Straight From the Black Swan's Mouth (Stephen J. Dubner, 5/21/07, NY Times)
    -INTERVIEW: Always Expect the Unexpected (James Surowiecki, March 2007, Wired)
    -PROFILE: Blowing Up: How Nassim Taleb turned the inevitability of disaster into an investment strategy (Malcolm Gladwell, April 22 & 29, 2002, The New Yorker)
    --ESSAY: A legacy of swans left to science : He is thought of as rightwing but is Karl Popper just misunderstood? (Roger James, April 27, 2002, The Guardian)
    -ARCHIVES: nassim taleb (Find Articles)
    -REVIEW: of The Black Swan: The Impact of the Highly Improbable by Nassim Nicholas Taleb (Giles Foden, The Guardian)
    -REVIEW: of Black Swan (Tyler Cowen, Slate)
    -REVIEW: of Black Swan (Niall Ferguson, Daily Telegraph)
    -REVIEW: of Black Swan (Gregg Easterbrook, NY Times Book Review)
    -REVIEW: of Black Swan (Jack Uldrich, Motley Fool)
    -REVIEW: of Black Swan (Oliver Burkeman, The Guardian)
    -REVIEW: of Black Swan (Michael Scown, Asian Review of Books)
    -REVIEW: of Black Swan (Will Self, Independent)
    -REVIEW: of Black Swan (Will Davies, Oxonian Review of Books)
    -REVIEW: of Black Swan (Robert Lenzner, Forbes)
    -REVIEW: of Black Swan (Peter Coy, Business Week)
    -REVIEW: of Black Swan (John Cornwell, Times of London)
    -REVIEW: of Black Swan (George Gilder, National Review)

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