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UFPPC (www.ufppc.org) Digging Deeper CXLIII: November 22, 2010, 7:00 p.m.

Nassim Nicholas Taleb, The Black Swan: The Impact of the Highly Improbable,
2nd ed. (New York: Random House Trade Paperbacks, 2010). Originally
published 2007.

[Thesis. Taleb is a self-proclaimed taught him the most, because it
"skeptical empiricist" (2), but he believes portrayed events as they happened,
he knows that "our world is dominated by providing "a training course in the
the extreme, the unknown, and the very dynamics of uncertainty" (14; 10-14).
improbable" (xxxii)—in other words, that Information increases one's likelihood of
we live in what he dubs "Extremistan." mistakes: "avoid the newspapers" (17;
No one really knows what is going on. 14-17). Studying at the Wharton School
People believe otherwise because we convinced Taleb that no one "know[s]
"fall for the confirmation error" (85).] what is going on"; he experienced "Black
Monday" (Oct. 19, 1987) as a vindication
Note to the Second Edition. In of his ideas (17; 17-22).
addition to a long "Postscript essay," only
a few footnotes have been updated "to Ch. 2: Yevgenia's Black Swan. A tale
preserve the integrity of the original text" (invented) of a surprise bestseller;
(xix). Yevgenia Nikolayevna Krasnova, who
appears in the index is a transparent
Prologue. A Black Swan (capitalized) is alter ego for the author (23-25).
an event that (1) is an outlier, (2) it
"carries an extreme impact," and (3) is Ch. 3: The Speculator and the
explained retrospectively (xxi-xxiii). Prostitute. Just as in some categories
"Black Swan logic makes what you don't there are wide variations (Extremistan,
know far more relevant than what you do e.g. personal wealth) and in others there
know" (xxiii). History cannot be are not (Mediocristan, e.g. body weight),
predicted; what is surprising is our so some realms of paid activity are
blindness to this fact (xxiv-xv). Our "scalable"—are not dependent on time
minds seem ill adapted to learning this worked—e.g. trading, and others are
(xxv-xxvii). Silent heroes are (prostitution) (26-34). It is in Extremistan
unrecognized and made to feel useless that "we are subjected to the tyranny of
(xxvii-xxviii). Taleb is not interested in the singular, the accidental, the unseen,
the usual—this is "often irrelevant" and the unpredicted" (35; 25-37).
(xxix). Platonicity is the tendency to
mistake the map for the territory (xxix- Ch. 4: One Thousand and One Days,
xxx). To make his anti-narrative or How Not to Be a Sucker. The
argument, "this book is a story" (xxxi). problem of induction; its history (Hume,
Sextus Empiricus, Algazel) (38-50).
PART ONE: UMBERTO ECO'S
ANTILIBRARY, OR HOW WE SEEK Ch. 5: Confirmation Shmonfirmation!
VALIDATION. Though a Popperian search for
falsification is the best approach for
Ch. 1: The Apprenticeship of an learning about the world, we have built-in
Empirical Skeptic. Autobiographical (3- cognitive biases that deter us from using
8). Witnessing the Lebanese civil war it (51-61).
schooled Taleb in unpredictability (8-10).
Interested in the philosophy of history, Ch. 6: The Narrative Fallacy. Humans
William Shirer's Berlin Diary (1941) are inclined to a "narrative fallacy" that
causes them to misestimate risk (63; 62- naturally shallow and superficial—and we
80; see also Daniel Gardner, The Science do not know it. This is not a
of Fear [2008], which makes the same psychological problem; it comes from the
points with greater refinement; both main property of information" (132; 131-
volumes share the view that the human 33). Taleb's recipe for enlightenment: "I
brain is adapted to natural circumstances propose that if you want a simple step to
that are far removed from the ones it a higher form of life, as distant from the
inhabits in the modern world, and that animal as you can get, then you may
many characteristics of the have to denarrate, that is, shut down the
contemporary order are the result of television set, minimize time spent
this). The way to avoid this tendency is reading newspapers, ignore the blogs.
"to favor experimentation over Train your reasoning abilities to control
storytelling, experience over history, and your decisions; nudge System I (the
clinical knowledge over theories" (84; 81- heuristic or experiential system) out of
84). the important ones. Train yourself to
spot the difference between the
Ch. 7: Living in the Antechamber of sensational and the empirical. This
Hope. Those who pursue Black Swan insulation from the toxicity of the world
events live on hope; this is not an will have an additional benefit: it will
approach to life that is generally improve your well-being. Also, bear in
successful and it can be psychologically mind how shallow we are with
difficult to maintain; Taleb invents books probability, the mother of all abstract
(Il deserto dei tartari) and characters notions. You do not have to do much
(Nero Tulip, who becomes Yevgenia's more in order to gain a deeper
lover) to illustrate his points (85-99). understanding of the things around you"
(133).
Ch. 8: Giacomo Casanova's Unfailing
Luck: The Problem of Silent PART TWO: WE JUST CAN'T PREDICT.
Evidence. Success stories are of little There are limits to prediction (135-36).
use, because we do not know about
those who used the same methods and Ch. 10: The Scandal of Prediction.
failed; the successful are "less uniquely "Epistemic arrogance" leads us to
talented than we think"; this applies overestimate how much we know, and
especially to highly dangerous activities also to exaggerate the importance of
(103; 100-10). In general, consequences having more information (137-45). In
of actions are often hidden from view: some professions some competence
"that we got here by accident does not exists (medicine, chess, physics,
mean that we should continue to take accountancy...) and in some it does not
the same risks" (116; 110-17). "My (stockbrokers, court judges, psychiatrists,
biggest problem with the educational intelligence analysis, economists...) (145-
system lies precisely in that it forces 51). How "experts" justify their mistakes
students to squeeze explanations out of (151-56). "We cannot truly plan,
subject matters and shames them for because we do not understand the future
withholding judgment, for uttering the 'I . . . [but w]e could plan while bearing in
don't know'"; but things are not so mind such limitations. It just takes guts"
simple (120; 117-21). (157). "We misunderstand the logic of
large deviations from the norm" (160).
Ch. 9: The Ludic Fallacy, or the The fallacies involved in predicting are so
Uncertainty of the Nerd. In real life, severe that predictions are not really
you don't know the odds (122-30). possible (160-64).
Summarizing Part One: "[W]e are
Ch. 11: How to Look for Bird Poop. failure often depend on cumulative
The unpredictability of discovery (165- effects (215-18). These are powerful,
71). Popper's demonstration of history's and explain why "members of the Swiss
unpredictability in The Poverty of Army use English (not French) as a lingua
Historicism (171-73). In praise of Henri franca" (220; 218-25). "We are gliding
Poincaré (174-76). The three-body into disorder"; concentration in banking
problem (176-79). Hayek on the social (225-27). The problem is not just
sciences (179-81). Medical "empirics" inequality, but "the absence of a role for
(182-83). Free will vitiates predictability the average in intellectual production"
(183-85). There are never enough data (227-28). "Extremistan is here to stay"
to predict (185-88). (228).

Ch. 12: Epistemocracy, a Dream. Ch. 15: The Bell Curve, That Great
Taleb dubs a person who "holds his own Intellectual Fraud. Blame for the
knowledge to be suspect" an tyranny of the Gaussian bell curve, which
epistemocrat, (190). Montaigne as applies only in Mediocristan, not
epistemocrat (191-92). It is harder to Extremistan, can be laid at the feet of
"predict" the past than the future (192- Adolphe Quételet (1794-1874), the
98). Historians have been mistaken to inventor of the "average human,
pursue causation—it's just the narrative l'homme moyen" (241; 229-51). But
fallacy again (198-200). almost no one has the perspicacity or
"courage" to reject it (251-52; 274).
Ch. 13: Appelles the Painter, or
What Do You Do If You Cannot Ch. 16: The Aesthetics of
Predict? Rank beliefs according to Randomness. Benoît Mandelbrot, "the
plausibility, and be prepared for all only flesh-and-bones teacher I ever had
relevant eventualities (201-03). The —my teachers are usually books in my
quest to eliminate risk can increase it library" (254; 253-56). Mandelbrotian
(203-05). Taleb's investment advice: fractals (254-62). These fractals
"put a portion, say 85 to 90 percent, in represent randomness better than
extremely safe investments, like Gaussian functions, but everything
Treasury bills—as safe a class of depends on the exponent, which is
instruments as you can manage to find unknowable (262-68). Instead of
on this planet. The remaining 10 to 15 studying the world to understand the
percent you put in extremely speculative market, we should "study the intense,
bets, as leveraged as possible (like uncharted, humbling uncertainty in the
options), preferably venture capital-style markets as a means to get insights about
portfolios" (205). Practical advice: the nature of randomness that is
cultivate asymmetric situations "where applicable to psychology, probability,
favorable consequences are much larger mathematics, decision theory, and even
than unfavorable ones" (cf. Pascal's statistical problems" (268). This
wager): "Go to parties! . . . And if you are approach can turn some Black Swans
autistic, send your associates to these into "Gray Swans" (scientifically tractable
events" (210; 209; 206-11). rare events) (268-73).

PART THREE: THOSE GRAY SWANS Ch. 17: Locke's Madmen, or Bell
OF EXTREMISTAN. Four "final items" Curves in the Wrong Places.
(213). Professionals are unwilling to give up
their obsolete, meaningless statistical
Ch. 14: From Mediocristan to tools (274-77). Diatribe against the
Extremistan, and Back. Success and "Nobel" prize in economics; in attacking
Robert C. Merton, Taleb goes for the crisis was "not a Black Swan" because it
jugular (277-85). had nothing new about it" (321-22). "My
dream is to have a true Epistemocracy"
Ch. 18: The Uncertainty of the (322). Taleb has learned one need not
Phony. An aggressive lament that those listen to questions when being
he attacks are unreceptive to his interviewed; no one notices or cares
arguments, and is most annoyed by self- (323). "So now I am disengaged. I am
proclaimed skeptics who "somehow fall back in my library" (323).
for the securities analyst"; "I do not want
to be drawn into philosophical debates II—Why I Do All This Walking, or How
with my Black Swan idea. . . . I am a no- Systems Become Fragile.
nonsense practitioner" (291; 286-92). Embarrassed to learn he was ignorant of
organisms' need for variability and
PART FOUR: THE END randomness, Taleb introduced
randomness into his personal routine and
Ch. 19: Half and Half, or How to Get benefited (324-29).
Even with the Black Swan. An
amusing self-description of Taleb's III—Margaritas Ante Porcos. A review
divided personality (295-96). Gratitude of mistakes made by reviewers of The
for some life-changing advice: "I don't Black Swan (330-33). This book is really
run for trains" (297). Stop being upset "a philosophical tale" (334-35).
by little things; be grateful; "remember Ignorance and unfairness (335-38).
that you are a Black Swan" (298).
IV—Asperger and the Ontological
Epilogue: Yevgenia's White Swans. Black Swan. On the psychological
Yevgenia's second book flops—another resistance to Taleb's ideas (339-46).
Black Swan (299-300).
V—(Perhaps) the Most Useful
Glossary. 35 terms, many coined by Problem in the History of Modern
Taleb (301-04). Philosophy. The Black Swan is "the
very first attempt (that I know of) in the
POSTSCRIPT ESSAY: ON history of thought to provide a map of
ROBUSTNESS AND FRAGILITY, where we get hurt by what we don't
DEEPER PHILOSOPHICAL AND know, to set systematic limits to the
EMPIRICAL REFLECTIONS fragility of knowledge—and to provide
exact locations where these maps no
I—Learning from Mother Nature, the longer work" (347). A paper co-authored
Oldest and the Wisest. The Black with Avital Pilpel on the inherent difficulty
Swan changed Taleb's life, mostly for the of estimating low-probability events
better (307-09). He recognizes only two (348-57). Intuitions in this area are
significant mistakes in the first edition unreliable (357-58). This is the problem
(309-10). Thoughts about Mother of "fat tails" (358-60).
Nature: (1) She "likes redundancies," (2)
does not "like anything too big" (in VI—The Fourth Quadrant, the
passing, Taleb says he does not trust Solution to That Most Useful of
models of climate change [315]), (3) Problems. First Quadrant, simple binary
"does not like too much connectivity and payoffs; Second Quadrant, complex
globalization" (310-17). Redundancy can payoffs, Third Quadrant, simple payoffs
be helpful (317-19). Taleb's notion of in Extremistan; Fourth Quadrant,
probability is not philosophically precise complex payoffs in Extremistan: "that is
or sophisticated (319-20). The 2008
where the problem resides" (365; 361- "easily bored" and unable to "work on
66). problems beyond their point of
diminishing returns" (272). As a trader
VII—What to Do with the Fourth he pioneered tail risk hedging, now
Quadrant. Extends the notion of known as Black Swan Protection. He
iatrogenics (367-70). Nine rules for when published Fooled by Randomness in 2001
a "barbell" approach (cf. 205) isn't and The Black Swan in 2007; the latter
possible (370-73). had sold 1.5 million copies as of March
2009. Professionals in his field have
VIII—The Ten Principles for a Black- accused him writing hyperbolically and
Swan-Robust Society. Political advice he has engaged in several polemical
(374-76). exchanges, but some statisticians have
defended him (e.g. the late David
IX—Amor Fati: How to Become Freedman of Berkeley). He is under
Indestructible. Mediation on death; contract for a third book, purportedly to
praise for Seneca (377-79). be entitled Antifragility.]

Notes. 19 pp. [Critique. Highly recommended. This is
serious and unusually engaging book
Bibliography. 29 pp., about 850 items. that delivers an unwelcome but
important message: human beings are
Acknowledgments for the First ill-equipped to understand their own
Edition. Friends situation in the world and constantly err
in estimating risks. These ideas are
Index. 8 pp. presented in a sassy but finally engaging
style that, while it will be annoying to
About the Author. Nassim Nicholas many, has endeared him to many
Taleb has had three careers: man of readers. — Taleb is immensely learned,
letter, businessman, professor. to a degree that is rare today, but wears
"Although he spends most of his time as his learning lightly. He salts his doctrine
a flâneur, meditating in cafés across the with nuggets of wisdom, like "Humans
planet, he is currently Distinguished will believe anything you say provided
Professor of New York University's you do not exhibit the smallest shadow
Polytechnic Institute" (445). of diffidence" (98) and "the ultimate test
of whether you like an author is if you've
[Additional information. Nassim reread him" (198) and "A theory is like
Nicholas Taleb was born into a medicine (or government): often useless,
politically prominent Greek Orthodox sometimes necessary, always self-
family in 1960 in Amioun, Lebanon. His serving, and on occasion lethal" (285).
"erudite and polymathic" (255) father is — Taleb never engages issues of war
an oncologist and research and militarism (or, indeed, politics)
anthropologist. Taleb holds science directly, however; the only war he
degrees from the University of Paris, an discusses is the civil war in Lebanon. —
MBA from the Wharton School, and a Taleb has two supreme intellectual
Ph.D. in Management Science from the heroes, Montaigne and Francis Bacon; he
University of Paris (Dauphine), with a is also a great admirer of Karl Popper.
thesis on the mathematics of derivatives He generally begins with the personal,
pricing. He is fluent in English, French, and proceeds to more technical material,
and Arabic and knows seven other following classical rhetorical precepts
languages as well. He calls himself (ethos → pathos → logos).]