Black swan by Nassem Taleb, Philosophy

1. The Black Swan
Nassim Taleb

2. What is a Black Swan?
• A highly improbable event with three characteristics
Unpredictable (Outlier, random)
Has a massive impact
We concoct a rationalization post facto, making it appear less
random than it actually was (Hindsight Bias)
• Etymology of the term
For centuries, people believed swans were always white
Validated by all empirical evidence at the time
The first sight of a black swan invalidated the entire
belief
We have a severe limitation of our knowledge, coming
primarily from what we experience

3. His Early Life
• Discovered that it is easier to be a
nice/conforming/reasonable guy most of the
time, with the occasional outward show of an
ability to act on his own beliefs
• Grew up in Lebanon, a “Paradise” of sorts, lived
through a war, showed outward rebellion until
capture
Claims his outward rebellious nature as a kid made
him feared in a sense, even by his own family

4. Triplet of Opacity
• We cannot get a full grasp of history due to this triplet of opacity
We can see what happens, but we cannot see the mechanisms of how it
happened
• The Illusion of Understanding
People think they understand what’s going on in a world more complex than
they can understand
• The Retrospective Distortion
Hindsight Bias
We make things appear more organized than it was at the time
• Overvaluation of factual information, and categorization of authority and
learned people
• Our minds are great machines for rationalization and self-delusion
More intelligent people rationalize things more eloquently
• History progresses in terms of violent jumps, rather than slow increments
of progress

5. Money Money Money
• “Cabdrivers did not believe that they understood as much as
learned people—really, they were not the experts and they knew it.
Nobody knew anything, but elite thinkers thought that they knew
more than the rest because they were elite thinkers, and if you're a
member of the elite, you automatically know more than the
nonelite.”
Sounds a little like Socrates
• People look so hard at specific details they ignore the general
picture
• People generally cut things into the same categories and place the
same importance on things when they take their positions
Categories are also seen as more black-and-white, ignoring the many,
many shades of gray in the middle
Categorization always makes things simpler than they are
Think compressing an audio file into an .mp3 file

6. Scalability
• A Scalable job is one which you sell an idea,
rather than labor
Stock broker, writer, musician, artist, etc…
No limit theoretically to potential earnings
• Issue with scalability is it is influenced primarily
by randomness, more so than anything
Small number of giants, large number of dwarves,
whereas in a nonscalable job, it is dominated by the
mediocre, the middle of the pack

7. Mediocristan and Extremistan
• In Mediocristan, there is not a great difference between the top 1% and bottom
1%
When a sample is large, no individual event will influence it significantly if the
amounts do not differ much (Say the average weight of 1,000 random people)
• Extremistan
Inequalities in this are such that one individual sample can drastically change the
group
E.g. line up 1,000 random people, then add Bill Gates and calculate average net worth
We live in an Extremistan society
Since one variable can have such a great effect on something, black swans
are much more common
E.g. Killing a king in a Monarchy (100% of power) has a much
greater effect than killing a citizen in an Athenian Democracy (a fraction of a percent
of power)
The small events will be more common but have less
impact

8. The Brief List (There’s more)
• Matters that seem to belong to Mediocristan (subjected to what we call
type 1 randomness)
Height, weight, calorie consumption, income for a baker, a small restaurant
owner, a prostitute, or an orthodontist; gambling profits (in the very special
case, assuming the person goes to a casino and maintains a constant betting
size), car accidents, mortality rates, "IQ" (as measured).
• Matters that seem to belong to Extremistan (subjected to what we call
type 2 randomness)
Wealth, income, book sales per author, book citations per author, name
recognition as a "celebrity," number of references on Google, populations of
cities, uses of words in a vocabulary, numbers of speakers per language,
damage caused by earthquakes, deaths in war, deaths from terrorist
incidents, sizes of planets, sizes of companies, stock ownership, height
between species (consider elephants and mice), financial markets (but your
investment manager does not know it), commodity prices, inflation rates,
economic data

9. The Turkey Problem
• Problem of Inductive Knowledge
Introduced by Bertrand Russell
How can we logically go from specific instances to general conclusions when
we observe something
How do we know we know enough about it?
• If someone fed a turkey everyday, making it expect to be fed everyday,
what happens if the feeding stops?
Can be applied in any situation where “the hand that feeds can be the one to
wring your neck”
• That which is learned through empirical means can be wrong
If we study something for 1,000 days, what happens when something
unexpected happens on day 1,001
• Black Swans cannot be predicted
Every October since 1987 we’ve been alert for a big crash, but there was no
antecedent for the first one

10. We’re All Stupid
• “But in all my experience, I have never been in
any accident. . . of any sort worth speaking
about. I have seen but one vessel in distress in
all my years at sea. I never saw a wreck and
never have been wrecked nor was I ever in any
predicament that threatened to end in
disaster of any sort.” --- Captain Smith
His ship sank five years later

11. The Black Swan
• Can be instantaneous or occur over decades
Negative ones generally occur in a much shorter
time period
It’s easier to destroy than to build
• Fideism
Relying on faith rather than reason
Fueled the Middle Ages
• Taleb takes the position of being skeptical of
everything that happens in daily life

12. Confirmation
• Confirmation can be a very deceptive fallacy
• Round-trip Fallacy
If someone observed the Turkey for 1,000 days said that there was no evidence of the
possibility of black swans, he would be correct
If that same person said there was evidence of no possible black swans, he
would be incorrect, because the two statements are not interchangeable
“Almost all terrorists are muslims” does not mean “Almost all muslims are terrorists”
All Rap is music, but not all music is rap
• Domain-Specificity of Reasoning
Our mode of thinking depends on how the situation is presented
• Confirmation Bias (He calls is Naïve Empiricism)
We “know” what is wrong with more confidence that what we “know” is right
• Karl Popper
Empirical Falsification
Mechanism of Conjectures and Refutations
Make a bold claim, then try to find the evidence that refutes it

13. Confirmation
• Hempel’s Raven Paradox
All Ravens are black
Logically equivalent to “all nonblack objects are not ravens”
My pet raven is black
Supports the first statement, all ravens are black
A green (i.e. nonblack) thing is an apple (i.e. nonraven)
Supports the second statement
Since the two statements are logically equivalent, this
paradoxically indicates that we gained knowledge about ravens from
apples
Declares when learning about ravens, only evidence about ravens may
be used

14. Narrative Fallacy
• People overinterpret and use compact stories rather than raw
truths
We put things that are never there; e.g. we must weave explanations
for things that have no explanation or reason
• Be skeptical of your own theorizations
• Post Hoc Explanations
Better at explaining than understanding?
• Information is costly to obtain, and even costlier to store and
retrieve
Narratives make it more ordered
• Kolmogorov Complexity
We need order to make things more understandable
The more random something is, the greater the complexity

15. Narrative Fallacy
• E.M. Forrester
“The King died then the queen died” vs. “The King died then the queen died of grief”
Second sentence gives a plot, and is easier to organize and remember
• We remember things that fit a narrative over time, and forget those things that
don’t
• Memory is dynamic, constantly changing, not static
• There are tons of coherent explanations for almost everything
The true explanation, however, always remains objective and unique
• “A flood which kills thousands of people” is less believable than “an earthquake
that causes a flood which kills thousands of people”
It’s easier to order and compress the second one, and the narrative fits
Asking how much lung cancer is in the country vs. how much lung cancer is caused by
smoking; second one is likelier to be higher
Psychological compliance theory; adding the “because”
The reason doesn’t matter, the fact that you add it fits a narrative
which makes it more persuasive

16. Narrative Fallacy
• Two types of Black Swans
Ones that can be explained by a narrative
E.g. winning the lottery, 9/11, etc
Ones that cannot be explained
These are avoided and not preeminent in
society
• Nonrepeatable events are ignored before the
occurrence, and overestimated after

17. Linear Progression
• Most things in life are nonlinear and difficult to
understand
For example, it seems as if you can practice something
every day with no improvement, until out of nowhere you
start standing out above everyone else
• Quantity over quality when it comes to our rewards
systems and happiness
Good news is always good news first and foremost
• We need peer approval
However, our immediate environment is more important
than everyone else in terms of opinion

18. Silent Evidence Fallacy
• Bias
Difference between what you see and what is there
• For every success, there are a ton of undocumented failures
For every great writer, there are tons of writers with equal skills that
didn’t make it
• We take risks out of blindness to the probabilities, not out of gusto
or whatever
“We got here by accident, but shouldn’t keep following the same path”
• Not everything has a reason, and everything that exists today is a
result of an extremely low probability course of events that all
occurred
• Causes are good as a result of experiments, not post hoc
assessments

19. Ludic Fallacy
• A lot of straight-A “nerds” are inside the box thinkers
If you ask hypothetical Dr. John what the chances of a
coin flip landing on tails would be after landing on heads
10 times straight, he would say 50%
However, hypothetical Fat Tony will tell you it
would be less than 10%
• Ludic fallacy is that which we experience in real life has
little to do with what we learned in class
We must determine the odds on our own in real life
• Focusing does not work when trying to predict the
uncertain