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The Black Swan: Impact of the Highly Improbable

Updated: Sep 30, 2021

Introduction


Before we knew Australia was a thing, the western world unanimously considered all swans to be white, an undeniable claim confirmed by all detailed empirical evidence so far. The sighting of the first black swan illustrates more than diversity in the family of large water fowl that black swans belong to: for Nassim Taleb, black swans illustrate a much larger principle. “It illustrates a severe limitation to our learning from observation or experience and even broader, the fragility of our knowledge. One single observation can invalidate a general statement derived from millenia of confirmatory sightings of millions of white swans. All you need is one single...black bird” (xvi). Taleb describes a pretty stark contrast between what we think we know and what we actually know, and in his book The Black Swan tries to help prevent us from being suckers to the highly improbable but frequently occurring Black Swan.


Section I: Black Swans and Dr Who


So what exactly is a Black Swan? Taleb characterizes them with three characteristics: first anything that is an outlier, outside the realm of reasonable expectation because nothing reasonably points to its possibility: second, something that carries extreme impact, and thirdly (and most importantly), something that, when it does occur, people then retrospectively concoct explanations that explain its occurrence and make it look easily predictable. This last effect is particularly nasty: if a Black Swan (like WWI, COVID19, winning the lottery) occurs, it would cause its mayhem, and life would eventually move on. If the majority of people recognized “wow, no one saw that coming,” then the mayhem would end there. However, Black Swans illustrate this is not what usually happens. What usually happens is people after the effect of the Black Swan, look back with their 20/20 hindsight and fabricate how it “couldn’t have been any other way,” and see the improbable event as commonplace. This is much more nasty then the first scenario, because it means we never learn how random Black Swans really are, making us perpetually as vulnerable (if not more vulnerable) to the next Black Swan whenever it comes. I think this is oddly similar to an episode of Dr Who (David Tennant addition). As usual with Dr Who, unsavory aliens in small groups have descended to wreck mischief on the residents of the UK. The aliens of this particular episode are tricky to defeat, because once you look away from them you don’t remember you ever saw them. This means you could be in a house with the alien for a year or 10 years, being scared stiff every couple minutes by realizing its presence next to you, but being incapable of doing anything about it since you forget the alien exists as soon as your back is turned. Black Swans are like these Dr Who aliens: as soon as Black Swans occur, we simply treat them as if we knew they were going to happen the whole time, forgetting that before the Black Swan occurred we didn’t even know it could happen. Would you believe anyone three years ago that most of the world in 2020 would be locked down because of a nasty flu bug from china? Yet in 5 years, we will probably be saying that COVID19 and the lockdowns were inevitable, and a most necessary outcome of preceding events, making us yet again vulnerable to the Black Swan.


Section II: The Black Swan in its Natural Habitat


It is not just through epidemics that the highly improbable affects us: rather Black Swans reveal many areas where our knowledge is fragile. Taleb is very detailed in this part of the book (it takes up almost 200 pages), but he breaks the frailty of our knowledge into three kinds of ditches we constantly fall into: epistemic arrogance, platonic categories, and flawed tools of inference. Epistemic arrogance is essentially when induction goes wrong. Induction is the simple premise that the future will be like the past. This is a great assumption lots of times, but the times induction doesn’t work can be deadly, especially for turkeys. Consider a turkey that has been fed every day for as long as it can remember. Based on the past (lets say) 1000 days of being well fed, the turkey should reasonably expect to be fed again. The problem is that tomorrow is Thanksgiving, and the turkey is surprised by the completely unforeseen chopping block. We are often like turkeys: we simply assume the future will always be like the past in all the ways that we care about, and are therefore unprepared for that flat tire on your road trip, for instance.


The second ditch that we regularly fall into is that of Platonic categories: Taleb seems to loosely use the phrase Platonic categories and means basically a simplified outlook on reality. This explains Taleb’s dislike of the bell shaped curve: it is beautiful in its simplicity, but it is also simpletonian in its prediction. The bell shaped curve can predict all kinds of things in a world where it is assumed that Black Swans don’t exist. The problem of course is that Black Swans do exist quite proficiently, and therefore bell shaped curves are not very practical in real life. Those devoted to such simplistic thinking are dubbed by Taleb as nerds. Nerds for Taleb are not necessarily sallow, glasses-wearing devotees of technology. Rather they are people who think entirely inside the box, where they draw graphs with bell shaped curves on the walls of the box. Taleb gives an illustration: suppose two men, for our purposes named Fat Tony and Dr John are asked the same question. Fat Tony is a thick-fingered street smart businessman who has no degrees and “is remarkably gifted at getting unlisted phone numbers, first class seats on airlines for no additional cost, or your car in a garage that is officially full” (123). Dr John is an actuary for an insurance company, who “is a master of the schedule, as predictable as a clock...Dr John is a painstaking, reasoned, and gentle fellow” (123-124). Both men are asked one question: assuming a coin has an equal probability of landing heads or tails, if it is thrown and lands 99 times heads, what are the odds of getting tails on the next throw? Dr John immediately replies “trivial question. One half of course, given the premises” (124). Fat Tony replies (with a Brooklyn accent) no more than 1 percent, because “it is far more likely that your assumptions about the fairness are wrong than the coin delivering ninety nine throws” (124). Strictly speaking Dr John answered the question right, but “which would you favor for the position of mayor of New York City?” The uncertainties that we face in real life share little resemblance with the sterilized uncertainties in many exams and games” (124-125)


A third ditch we fall into is our flawed tools of inference. A particularly prevalent way we trip over our predictions is through neglecting the silent evidence. Since this ditch is prevalent enough, it's worth giving three examples: gambler’s believe that beginners are always lucky when they start out: indeed research confirmed that both gamblers and stock market speculators have lucky beginnings. Does this mean we should gamble, take advantage of beginners' luck and then stop? No, for a variety of reasons, but largely because beginner's luck is an optical illusion: those who start gambling will be either lucky or unlucky: by a large majority, it will be only those who were lucky in the beginning that will continue gambling. The unlucky gamblers, discouraged, will give up, disappear from the evidence sample while the only people left in the sample are those who got that initial luck of the draw, producing the appearance of beginner’s luck. Here’s another example: Millionaires, hotshots, and CEO’s advise embodying the traits they possess to reap similar success as themselves: traits like optimism, risk taking, and so on. But look at the silent evidence of failed millionaires, hotshots, and CEOs, and this group of failures will be full of people who also share optimism, risk taking, and so on. “What truly separates [the successes from the failures] is for the most part a single factor: luck. Plain luck” (106). For a third example, consider the allusion of stability: many consider it an intrinsic trait of New York City to at the last minute pull back from imminent disaster and survive. Looking only at New York, this seems plausible. However, there were also probably lots of people in Carthage, Tyre and Jericho that also had eloquent speakers also predicting the city’s invincibility. There may very well be a whole host of silent cities, or businesses, that have similar properties to New York but fell to Black Swans anyway. If you identify anything without considering the silent evidence, you are almost sure to go wrong.


Section III: How to not be a Sucker


So how do you predict a Black Swan? The answer unfortunately is that it wouldn't be a Black Swan if you could predict it, so by definition, we cannot predict Black Swans that are coming. If you do predict, you will always pick the wrong one. But it is also folly to try and avoid all judgement and prediction entirely. Not being a sucker for Black Swans is simply being a fool in the right place: be fooled in small matters, not in large harmful matters. Avoid dependence on large scale harmful predictions, and instead let your incorrect predictions do minimal damage. “By all means, demand certainty for the next picnic; but avoid government social security forecasts for the year 2040” (203). Taleb gives a series of simple and practical tips to prepare for Black Swans, and to avoid poor judgement and prediction calls, but the term asymmetry captures them all. Taleb defines asymmetry this way “I will never get to know the unknown since, by definition, it is unknown. However I can always guess how it affects me, and I should base my decisions around that” (210). So stop trying to guess which event is coming to prepare for since it will never be the one you guess. Instead, “focus on the payoffs and benefits of an event if it [were to] take place. The probability of very rare events are not computable; the effect of an event on us is considerably easier to ascertain (211). For instance, “if my portfolio is exposed to a market crash the odds of which I can’t compute, all I have to do is buy insurance, or get out and invest the amounts I am not willing to ever lose in less risky securities'' (211). So don't try and predict if a market crash will happen because you wont. Instead assume what would happen if it did, and then prepare for it. Will the government require vaccines to cross state borders? Instead of trying to guess whether it will happen, simply prepare for the outcome if it were to happen. As Taleb warns, “be prepared for all relevant eventualities” (203).

Section IV: Biblical Black Swans: We’re All Suckers Anyway


All of this book can essentially be summed up by James 4:13-16 “come now, you who say ‘today or tomorrow we will go to such and such a city, spend a year there, buy and sell and make a profit’; whereas you do not know what will happen tomorrow. For what is your life? It is even a vapor...Instead you ought to say ‘if the Lord wills, we shall live and do this or that.’ But now you boast in your arrogance. All such boasting is evil.” Taleb warns against large scale predictions, but James goes even farther and warns against large and small, against predictions for next year and tomorrow. Taleb’s Black Swans are more disastrous than I think Taleb gives them credit for: remember that many Black Swans were (like the bird) completely unpredictable. Taleb advises us to prepare for “relevant eventualities” and simply ignore the irrelevant possibilities, like the possibility that martians have planted chips in our heads. The problem though is that, as the cover of the book affirms, a key attribute of Black Swans is that they are highly improbable: most Black Swans that do occur seem to us about as likely to happen to us as martians planting chips in our head. Taleb’s original point was that the vast majority of Black Swans (like COVID19) are not relevant eventualities but they happen anyway. So it seems like some swans we can guard against and in this book Taleb effectively helps us with those. However, considering the vast majority of completely unpredictable and monumental phenomena that we are completely helpless against, we are still suckers. Control over our own lives is largely an illusion: we are victims of either luck’s favor or her dissatisfaction and there's nothing we can do about it. Taleb urges us to just live with it, but I don’t think this idea can be consistently lived out with any kind of joy or peace in Taleb’s world of evolutionary processes. For Taleb, we are all turkeys, waiting to be either fed heaps of food or slaughtered by the god Chance. But for Christians, we are all sons, learning how to live in the world given to us by our loving Father. True, we cannot predict Black Swans anymore than Taleb can: we cannot predict exactly the next scene of an infinite God’s play. Job requires an explanation for a Black Swan event, and God replies


“Where were you when I laid the earth’s foundation?

Tell me, if you understand.

Who marked off its dimensions? Surely you know!

Who stretched a measuring line across it?

On what were its footings set,

or who laid its cornerstone—

while the morning stars sang together

and all the angels shouted for joy” (Job 38:4-11)


God’s replies that you aren’t in control, but God is, so don’t doubt His choices in storytelling. You are not in control, but you are sons and daughters of the Perfect One who is.


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