The Black Swan: The Impact of the Highly Improbable

Throughout The Black Swan: The Impact of the Highly Improbable, Nicholas Nassim Taleb argues for the profound importance of rare events in our lives. Taleb, a Lebanese former ‘quant’ trader on Wall Street turned philosophical flaneur, challenges conventional wisdom through his belief that our knowledge of causality is severely more limited than we are led to believe. For Taleb, those “experts” we watch on television who predict future potential earnings or analyze prior financial crisis are “empty suits”—nothing more than society’s “handicap of authority”. Black Swans, he argues, are beyond are our epistemic reach. They are events that cause “history to jump” or in more Talebian terms, they are beyond the “Platonic Fold” of our knowledge.

As I spoke in class, the term Black Swan comes from a story of discovery. Before the Old World discovered Australia, there was an incontrovertible belief that all Swans were white. This fact had been corroborated by hundreds of years of evidence and confirmed by empirical experience. However with one ugly citing, all conclusions were moot. The significance of the term is not the ornithological consequences, but rather an illustration of the limitations of our knowledge from prior experience.

Black Swan events, as Taleb lays out in his introduction, have three main properties:

1) They lay “outside the realm of regular expectations”—they are outliers.

2) They have tremendous consequences

 3) We humans have a tendency to believe in retrospective predictability (“Oh, I saw that coming from a mile away!”)

Because of these properties, we fall prey to several “Black Swan Problems”. These complications, namely, the error of confirmation, the narrative fallacy, and the problem of silent evidence are part of our human nature—we are slaves to our hard wiring. Taleb, however, uses these concerns as building blocks to help his reader understand why we are so susceptible to Black Swan and what this susceptibility implies about our capacity to learn.

In Taleb’s world, all of our Black Swan biases come from a fundamental lack of knowledge. We have the “illusion of understanding” events in our past because we fail to grasp the true randomness that runs our lives. These epistemic limits force us to “retrospectively distort” our past—we put history into Platonic categories and then allow the “empty suits” to write textbooks. Taleb calls this our tendency to “Platonify” our reality. We are drawn towards simplification because we aim to understand our past. To this point, Taleb preaches humility over “epistemic arrogance”. For him, it is far more valuable to know your anti-resume (what you do not know), rather than broadcast your know-how. In summary, Taleb believes that raising your hand and saying “I don't know” is much more illuminating than coming up with a Platonified answer.

From this logic, Taleb poses a few thought provoking hypotheticals worth mentioning. First, imagine a Congressman who pushed a bill through on September 10, 2001 that required all airliners to have locks on pilot doors. This Congressman, in Taleb’s world, should be praised for his world changing accomplishment. However, in our world of silent evidence, this Congressman will be ridiculed for introducing unnecessary legislation that overburdened the airline industry even though he prevented 9/11. Such enormous consequences illustrate the ability of Black Swans to make history “jump” rather than “crawl”.

Second, Taleb tells the story of a turkey before Thanksgiving. For one thousand days prior to the Wednesday before Thanksgiving, the Turkey is under the belief that at 3:00pm, a hand will feed it. Moreover, all prior experiences will allow the turkey to corroborate this unwise conclusion. However, one event shatters all prior evidence, the conclusion: the turkey loses its head. To drive home his point, Taleb adds: “consider that the feeling of safety reached its maximum when the risk was at its highest” for the turkey.

His point with those stories is he does not want people to be scared to cross the road, but rather--in his words-- not cross the road blindfolded. Taleb wants us to turn Black Swan events, events that are the result of our ignorance of profound randomness, into Gray Swans. Gray Swans, Taleb says, are not as shocking and earth shattering because, well, we expected something earth shattering to happen.

Phew! That is my brief (sorta…) summary of an extremely dense, exceptionally esoteric, and really, really challenging book. It's dense because he takes ideas from almost every academic discipline imaginable and mashes them together to form his theory (mathematics, philosophy, statistics, economics, psychology, history, sociology...). It's esoteric because he concocts many new terms to help serve his thesis (like Mediocristan, Extremistan, Epistemocracy, Triplet of Opacity). And it is challenging because if you accept his conclusions, the world becomes a random, unknown, and fragile place.

If I’m being completely honest, I did not understand the nuts and bolts of many of Taleb’s arguments. While I understand his general points, mainly that we fail to grasp the randomness of the world around us, I had a hard time following the different psychological, philosophical, and epistemic arguments he laid out. It is not that I didn't battle with these ideas (trust me, this book was a struggle), but that it’s hard to truly appreciate the gravity of these ideas unless you embrace all of the implied conclusions in his thesis (such as I might as well quit studying economics, it's apparently a "handicap on society"....ouch. Or that Joseph Stiglitz is just an "empty suit" spewing epistemic arrogance with his retrospective distortion) 

However, my internal confusion aside, I have a final question for my new friend Nassim Nicholas Taleb: If your vision becomes true, if everyone in the world becomes an empirical skeptic and embraces the randomness and unpredictability of our world, would that undermine the randomness that surrounds us? If everyone expects something random to happen, would there be any opportunities left to profit on that randomness?