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
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
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.