The Black Swan: 11 Steps to Grow More Rational

the black swan book

The Black Swan (2010) is a book on probabilities, risks and humans’ psychological biases. Nassim Taleb, the author, also teaches readers how to avoid common mental pitfalls and becoming better, more rational thinkers.

Exec Summary

  • History, the world and our lives are dominated by unlikely, large and unexpected events
  • Most people, mistakenly, focus on the likely and probable
  • We all see patterns and causality where, in reality, there is a lot of randomness

Summary

The Black Swan, especially in the last chapters, present more mathematical and technical details which, for the most part, I will skip in this summary.

This is my best introductory quote to The Black Swan:

In this (personal) essay, I stick my neck out and make a claim, against many of our habits of thought, that our world is dominated by the extreme, the unknown, and the very improbable (improbable according to our current knowledge)–and all the while we spend our time engaged in small talk, focusing on the known, and the repeated.

This implies the need to use the extreme event as a starting point and not treat it as an exception to be pushed under the rug.

I also make the bolder (and more annoying) claim that in spite of our progress and the growth in knowledge, or perhaps because of such progress and growth, the future will be increasingly less predictable, while both human nature and social “science” seem to conspire to hide the idea from us.

1. What’s a Black Swan

Here is the definition:

A black swan is a highly improbable event that catches most everyone by surprise and can potentially disrupt human activities or create havoc.

Conversely, a highly expected event not happening is also a black swan.

Nassim Nicholas Taleb says that a small number of black swans explain almost everything in our world, from religions to historical events to our own personal lives.

As the world became more complicated and interconnected, the potential effects of predictable events decrease, while the potential effects of black swans have further increased.

A black swan is a low probability, large impact event

Nicholas Nassim Taleb

2. You Cannot Measure Black Swans

Black swans, by their own nature of being so unlikely and lying outside most people’s grasp, are extremely difficult to measure and compute.

The umeasurability of black swan and the human tendency of discounting their very possibility, is a central tenet in the book.
Nassim Nicholas Taleb has had first-hand experience in a field highly susceptible to black swans and yet theoretically full of data and measures.
That field is finance and trading.
Taleb mocks and taunts the mathematical models of investment banks, saying they all operated under the false assumption that there are tools to measure uncertainty.

The author says that many models of portfolio and risk management exclude the possibility of a black swan.
This was the case for Long Term Capital Management, where the Nobel-prize winning founders, so sure of their mathematical models, loaded up on risk and created a time bomb.
At the very first black swan, within a few years of its inception, LTCM risked of taking the whole financial system down -turns out that “long term” is relative :)-

Bell Curves Deviations Promote Black Swans

The title is wrong.
Bell curves don’t directly promote black swans, but they contribute in making them more unexpected and, potentially, disastrous.

Bell curves measure the normal, the average, and they ignore the large deviations and the unexpected.

Training for Failure

Taleb says that organized sports that forbid certain moves make trained athletes weaker to unexpected events.
Fighters for example train with rules, which makes them more vulnerable in a street fight because they are trained not to expect illegal moves.

Those who win the gold medals might be precisely the most vulnerable in real life.
In real life, you don’t know the odds. You need to discover them.

A Wise Man Knows He Doesn’t Know Anything

Taleb promotes a focus on “anti-knowledge”, such as a focus on what we don’t know.

He says we should not try to predict black swans, but adjust to them. And when we adjust to them, we can position ourselves not only to limit the downsides but also to take advantage of possibly positive black swans, which Taleb calls “serendipitous black swans”.

We need to adjust to black swans’ existence instead of naively trying to predict them

3. Recognition Is Random As Well

Nassim Taleb says that recognition, awards and rewards often don’t really go to the people who helped the world the most.

For example in the aftermath of the 9/11 attacks people who got the glory were those who were seen as performing heroic tasks or those who gave the impression of performing heroic tasks.
Taleb says one example of the latter category is Richard Grasso, chairman of NYSE who “saved the stock exchange” and received a huge bonus for it. What did he do exactly? Ring the trading bell on television.

But we don’t see and don’t reward those who actually worked behind the curtains to prevent catastrophic events.
So we reward the central banker who is presiding on a recovery after a recession, but never the central bank who helps prevent a recession.

Sometimes we actually punish those who help prevent a catastrophe because their measure can create bottlenecks or cost money.

Great People Were Lucky

One of the most, hardest-hitting theories of Taleb is that of randomness of rewards.

We live in a society that glorifies the individual here in the west, and we like to think that windfalls are always deserved.
But Taleb makes the very credible point that, more often than we realize or care to admit, success and who we choose to remember or forget is rather randomEinstein has displaced so many others equally deserving, says the author-.

Just to be clear, he does not say that successful people are not talented, but simply that they are less uniquely talented than we think.
And I find that to be a liberating and empowering message.

One of the most famous and criticized notions from The Black Swan is that, simply by randomness in a large population, you are bound to have successful traders. But that success might have nothing to do with talent. He says that in a large enough population you will have a Warren Buffet or a Ray Dalio, but that doesn’t necessarily mean they must be talented and/or that their results will keep being that good over the centuries.

My Note: Warren Buffet bets on bullish America, but what if turned bearish?
Buffet indeed is mostly long, and he bets on the stock market going up and the economy doing good.
The economy has done great during the years he’s traded. Would he do as well during prolonged recessions? Who knows…
And again, this is not to accuse Buffet, he is a legend and I respect and admire him.

4. Anecdotes and Quotes Are Not Evidence

Nicholas Nassim Taleb talks about the tendency of narratives to be built around influencing and convincing instead of searching for the truth.

He says:

(…) I call this overload of example “naive empiricism”: a succession of anecdotes collected to fit the story do not constitute evidence.

Anyone looking for confirmation will find enough to deceive himself -and no doubt his peers-.

(…) By searching you can always find someone who made a well-sounding statement confirming your point of view. And on any topic it’s possible to find someone who said the exact same opposite.

5. The Triplet of Opacity

Nassim Taleb also deals with history in his Black Swan Essay.
And he doesn’t just say that we can’t predict the future, but also that our understanding of past events is highly flawed.

These are what he calls “the triple of opacity”:

  • The illusion of understanding: we think we know what’s going on but the world is more complex (and random) than we realize
  • The retrospective distortion: we only see events after they happened, and they seem clearer and more organized than they actually are. Our mind “explains” and connects events that are actually random.
  • The overvaluation of factual information: especially at the hands of authoritative and learned people, who think they have the tools to make connections and predictions. Even more dangerous, because “the more intelligent the person, the better sounding the explanation”

Taleb says that “nobody really knows what’s going on”, and he lays out a few great examples for each point.

Narrative Fallacies

Taleb says we all engage in simplification of the world that often turn out to be distortions more than simplifications. And on top of distortions, in those simplifications, we all leave out the black swans.

6. Mediocre Stand VS Extreme Stand

Some professions and that are scalable and produce few winners and masses of losers (extreme stand).

And some professions and fields are not scalable and are more equalitarian (mediocre stand).

Authors and book sales are one example of the extreme stand, where the biggest authors sell thousands of times more than the thousands of average selling authors combined.

Average human height and average weight are examples of mediocre stand, and they can be easily measured with a bell curve.

It’s in extreme stands that the black swans are most disruptive. You can lose or make a fortune in a single day or in a single unexpected event.
Taleb refers to the two as being victims to the “tyranny of the collective” or “tyranny of the accidental”.

Be Careful of “Scalability”

Nassim Taleb would actually recommend people to pick a profession that is not scalable.
Scalable fields are very risky because they present huge disparities between efforts and rewards. They are dominated by a very small amount of giants and an army of dwarfs struggling to make ends meet.

Extreme Stand and Knowledge

Dealing with mediocre stand means that you can more easily measure the whole population by looking at a few hundred cases.

But in extreme stand, measuring a few hundred cases will likely tell you very little. If you take earnings for example, the chances you will pick a Bill Gates in your sample are very slim, but the people like Bill Gates exert a huge influence on the world.

Knowledge in extreme stands grows slowly and erratically with the addition of new data. Sometimes it changes extremely, and possibly at an known rate.

In Taleb’s opinion financial markets belong to extreme stands -albeit your investment manager doesn’t know it, he adds :)-.

7. News Make You Understand Less of The World

I could not agree more with Taleb when he talks about the media often confusing people about the world instead of helping them understand.

The author says that the media falls for the bias of looking for causes to random events, but makes the process even more credible -and dangerous- by using an army of fact checkers to give n appearance of thoroughness.

He says:

It’s as if they wanted to be wrong with infinite precision instead of accepting being approximately right… Like a fable writer.

Media brings the sensational and the black swan to the fore, which leads us to overestimate its impact, while it leaves in the dark all the other black swans, leading us to severely underestimate them.

Nationalities Narratives

Taleb says that in looking for causes we often fall into the “nationality” narratives, such as assigning a cause to someone’s behavior that hinges upon their nationality or their background.
He says that sex, profession, and social class are much better predictors of behavior and personality than nationality.

He also adds evolutionary psychology as another popular field where people go hunting for causes, and I could not agree more -and be equally annoyed by-.

8. Black Swan and Rational Limits

Taleb talks about how we are liable to exaggerate the risks of known black swans, such as terrorism, and radially underestimate the black swans that we know nothing about -most of them anyway-.

He also introduces system 1 and system 2 thinking from Thinking Fast and Slow by Kahnemann and The Society for Judgment and Decision Making, which I will look into becoming a member because it sounds awesome.

The Round-Trip Error

Taleb calls the round-trip error the tenedncy to confuse “no evidence fo black swans as evidence of no black swans”.
That’s system one at work, and you have to make an effort to use system two and correct the initial mistake.

9. Snake Oil Humanitarians

This is another of Taleb’s theories that also long been a pet peeve of mine.

He says that politicians throw money at publicized disasters. But to do so, they divert funds from equally important causes and who says which cause is more important?
Exactly, there is no real study behind it and no really well-thought theory. It’s just a publicity, media-driven stunt sometimes.

Again, we focus on what’s visible, but not on what’s unseen.
And, the author says, these unseen consequences can be, and generally are, more meaningful.

It was so noble on their part to do something so humanitarian, to rise above out abject selfishness.

Did they promise to do so with their own money? No, it was with public money.

(…)

Have the guts to consider the silent consequences when standing in front of the next snake oil humanitarian

10. Risk-Taker Genes: Be Aware of Risks

Taleb says that we have inherited the genes of those who took risks, which makes us often more risk-seeking than it’s actually warranted.

He says he is not against risk, but against the encouragement of uninformed risk-taking.
We take risks often not out of bravado, but out of ignorance and blindness to probability.

Says Taleb:

The fools, the Casanovas, the blind risk-takers, are often the ones who win in the short term.

Of course, in a black swan environment, one single rare event can come up to shake up species after a very long run of fitness.

11. Black Swans and Evolution

Some people have a tendency to see evolution as this magical invisible wand that moves species towards better and better states.

Nothing could be further from the truth.
As Taleb says:

Evolution is a series of flukes. Some good, many bad. You only see the good. But in the short term it’s not really clear which traits are really good for you.
(…)
This idea that we’re here, that this is the best of all possible worlds, and that evolution did a great job seems rather bogus.

the black swan book

Quotes

I absolutely love Nassim Taleb’s writing style and many of the quotes made my listening day :).
Some of them:

Black swan logic makes what you don’t know far more relevant than what you do know.

On “experts”:

Our inability to predict in environments subject to black swans (..) means certain professionals, while believing they are experts, are in fact not.

Based on their empirical records, they dont know more on their subject matter than the general population.

But they’re much better at narrating. Or worst at smoking you with complicated mathematical models.

They are also more likely, to wear a tie.

On wars and avoiding wars:

Who is more valuable, the politician who avoids a war or the one who starts one and is lucky enough to win.

On “fuck you money”:

This is sometimes called “fuck you money,” which, in spite of its coarseness, means that it allows you to act like a Victorian gentleman, free from slavery. 

It is a psychological buffer: the capital is not so large as to make you spoiled-rich, but large enough to give you the freedom to choose a new occupation without excessive consideration of the financial rewards.

It shields you from prostituting your mind and frees you from outside authority–any outside authority.

(..)

Note that the designation fuck you corresponds to the exhilarating ability to pronounce that compact phrase before hanging up the phone.

I personally especially enjoyed the injections of Nassim Taleb’s humor across the book, for example:

Line up a thousand of authors, or people begging to be published who call themselves authors instead of waiters.

About an intellectual discussion he was having in Italian:

He was so charismatic, so convinced and convincing that, although I could not understand much of what he said, I found myself fully agreeing with everything.

(…) At some point during his speech he turned all red with anger, thus convincing me -and the audience- that he was definitely right.

I also love his biting, irreverent irony, for example:

Creatures with the largest cortex have the largest intelligence.

We humans have the largest cortex. Followed by bank executives, dolphins and our cousins the apes.

On “John Nash” hype, and game’s theory inability to predict anything:

(..) in which the most notorious player is John Nash, the schizophrenic mathematician made famous by the film “A Beautiful Mind”.

Sadly, for all the intellectual appeal of this method and all the media attention its practitioners are no better at predicting than university students.

On philosophers VS “normal” human beings:

You can also see masses of tourists, laughing at the caricatures that lower-level primates represent.
Now imagine being a member of a higher level species, say a real philosopher, a truly wise person. Far more sophisticated than the human primates

Real-Life Applications

Therapeutic Applications of Black Swans Rationalizations
Taleb says that our tendency to rationalize events in a way that seems obvious can make us feel guilty for what happened.
“I could have done X” or “I should have seen that coming” are poisonous thoughts that cause unnecessary suffering. Taleb proposes to fix it with a narrative of unavoidability. Tell yourself it was bound to happen”. He says that writing daily diaries is a great way of acquiring that mentality.

Don’t Feel Guilty for Extinctions
Some of us today carry a feeling of guilt for what “we are doing to the world and other species”. But, the author say, species have been going extinct for millions of years, they always have and always will. And we don’t have to feel guilty for it.
Life is simply much more fragile than we think.
Also read: don’t fall for the guilt-tripping culture.

Watch Out for News and Pundits
Experts sometimes know little more than normal people when it comes to predictions. And news often confound you instead of making things clearer.

Watch Out for Those Who Refer to The Past for Future Predictions
Talking about commentators who like to say that “New York will always come back because it always has”, the author says:

I’m sure that Carthage and Jerico had their own no less eloquent pundits saying “our enemies have to destroy us many times but we always came back more resilient than before”

CONS

I recognize some of the criticism leveled against The Black Swan such as diverging, digressing, and going off-topic.
But to me, those are no real cons.
This is a work of philosophy as well, and I enjoyed those digressions because they added value most of the time.

However, I disagreed with the following:

Too Much Randomness?

Albeit I agree with much of what Taleb says, I find that sometimes he ascribes too much to randomness. Talking about how many manuscripts The New York Times rejects, he says “imagine the thousands of literary geniuses we will never hear about”.

Yet, I have to wonder if there are really that many literary geniuses.
maybe there are, but I’m not convinced.

Disregards the Tendency for Quality to Rise to The Top

The author discusses how a scientist and researcher can become famous and highly esteem simply by randomness circumstances and a lucky initial break.
Albeit that makes a lot of sense and nobody ever considers it enough, I also believe there is a (strong?) tendency for the cream to rise to the top. And that tendency has also the power to buck a few unlucky breaks along the way.

The Gulag Mistake

Talking about the human fallacy of looking for a cause, one of the examples the author provides is that of the rise of the Russian mafia who was brutal because hardened by their “gulag experience”.

Albeit I agree with the concept, that connection is a bit up in the air

He uses the example of rat labs to say that hard experience weakens the rats instead of making them stronger.
However, he does not acknowledge that it’s not just about physical deprivation, and suffering has shown to potentially alienate people from ethical and moral considerations.

The Later You Are, The Longer it Takes?

The author says that when a project is late, most people expect it to be closer and closer to completion the more time passes by.
But instead, he says, once you are beyond the deadline, the more time passes the further in the future the completion date moves.

However, that didn’t make sense to me, not rationally nor mathematically.
If it were true, there would be an acceleration towards infinity, and that is simply not always the case -albeit it might be with certain projects that were impossible to begin with, but those are a different case-.

The More Bankruptcies, The Better?

The author says that an often under-appreciated advantage of capitalism is that corporations that go bust are transferring wealth to the citizens.

I can see where he’s coming from and that’s very smart and I had never thought about it.

Yet, I’m not sure I fully agree or that you can apply that to the majority of corporations. Many companies simply fail because their products are not good enough.
Thus, they didn’t make a favor to anyone but they wasted resources.

Wrong & Terrible Example of The “Italian Boy”

Taleb talks about the story of an “Italian boy” who captured everyone’s attention for, in the author’s opinion, all the wrong reasons. The name of that kid is Alfredino Rampi.

It’s not true the boy was saved, unluckily.
And I feel it was the wrong example to make his point because that story is incredibly heartbreaking.
I wasn’t alive, and yet I will never forget the story of Alfredino.

It’s the story of a boy who fell head first in a well, narrow and deep. The rescuer and everyone around could hear his cries for help and his tears. Rescue operations went on for days, also on live TV.
In spite of everyone’s best efforts nobody managed to save him.

Alfredino died in a well in the most tragic, heart-wrenching circumstances. And that, in my opinion, makes it a terrible example Taleb picked to make his otherwise valid point.
And I extend a prayer to Alfredino (and all others who are suffering)

PROS

As I type these words I’m still needing to emotionally state shift from that Alfredino Rampi story which always affects me deeply to think of.

That being said, this book is wonderful.
To me the pros are both practical and intellectual:

  • Better understanding of life, the world and reality
  • Improving one’s own rational and critical thinking
  • Increased confidence understanding that successful people are no better than you
  • Better decision making through better understanding of risk and probabilities
  • Increased quality of life cutting out the noise

To Read After The Black Swan

Here is what I recommend reading after The Black Swan:

Video Review

Review

I understand how Taleb can be a divisive figure.

One of the top reviews on Amazon says that The Black Swan is “too demeaning of others”.
Some reviews complain about digressions and circumlocutions.
Some others call Nassim a conceited author, criticizing almost everyone but himself.

I can see where those reviews are coming from because, in a way, they are true.
Yet, it’s exactly those points that make a deep deep philosophical text -albeit with practical applications- into a masterpiece that is also a pleasure to read.

And yes Taleb does sound conceited at times, but he is so open and so frank about it that you just can’t help but laugh along.
Furthermore, he does have the chupatz to walk the talk, which makes him the perfect villain or, better yet, the perfect anti-hero: the Robin Hood of modern academia.

This is a very personal review because I could have written almost everything Taleb says myself -if I only were as smart as he is, that is :).
And I feel Taleb is a kindred spirit.
From his background to which he refers to “Mediterranean” to his historical references to his language skills going beyond English to his rebellious, slightly anti-social biting humor.

But mostly, I feel very much close to his pursuit of a life free of financial and mental chains.
Here is what he says on “fuck you money”:

It shields you from prostituting your mind and frees you from outside authority–any outside authority.

(…) it literally cured me of all financial ambition–it made me feel ashamed whenever I diverted time away from the study for the pursuit of material wealth.

I wanted to become a “flaneur”, a professional meditator. Sitting in cafes, lounge, unglued to desks and organization structures, sleep as long as I needed, read voraciously, and not owe any explanation to anybody.

This exactly how I feel and that’s why I am pursuing my own way of “fuck you income”.

As you might have guessed by now, I can highly recommend The Black Swan.

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