Nassim Nicholas Taleb : The Black Swan

According to Taleb we (as humans) focus on what we know and on mere specifics, therefore we cannot predict anything – may it be opportunities or catastrophies. “What is surprising is not the magnitude of our forecast errors, but our absence of awareness of it”, Taleb says.
He calls for an understanding on how to act under conditions of incomplete information as the highest and most urgent human pursuit – in private life and in business, I must add.

> Black Swans

‘Black Swans’ are events with high improbability. The Black Swan has 3 attributes: unpredictability, severe consequences, retrospective explainability.
9/11 was a Black Swan, the invention of the wheel was, Google’s overwhelming success is one, and the present financial crisis.
We haven’t seen it all coming, it has severe consequences (positive or negative), and afterwards – of course – we knew from the beginning.

> Blindness to Black Swans

1 – We focus on preselected segments of the seen and generalize from it to the unseen.
2 – We fool ourselves with stories that cater to out platonic thirst for distinct patterns.
3 – We behave as if the Black Swan does not exist: human nature is not programmed for Black Swans.
4 – What we see is not necessarily all that is there.
5 – We focus on a few well defined sources of uncertainty.

> We cannot predict (the Future)

“We tend to ‘tunnel’ while looking into the future, making it business as usual, Black Swan-free, when in fact there is nothing usual about the future. … I find it scandalous that in spite of the empirical record we continue to project into the future as if we were good at it, using tools and methods that exclude rare events.”

“The problem lies in the structure of our minds: we don’t learn rules, just facts, and only facts. Metarules (such as the rule that we have a tendency to not learn rules) we don’t seem to be good at getting.”

“Our intuitions are made for an environment with simpler causes and effects and slowly moving information.
We lack imagination and suppress it in others.”

“Additional knowledge of the minutiae of daily business can be useless, even actually toxic. … see more random noise and mistake it for information.”
“We can learn a lot from data – but not as much as we expect.”

“At JFK you can find gigantic newsstands with walls full of magazines. … These walls present you with the entire corpus of what an ‘informed person’ needs in order to know ‘what’s going on’.
I wonder how long it would take to read every single one of these magazines, excluding the fishing and motorcycling periodicals (but including the gossip magazines – you might as well have som fun). Half a lifetime? An entire lifetime?
Sadly, all this knowledge would not help the reader to forecast what is to happen tomorrow. Actually, it might decrease his ability to forecast.” …
“Many people who think they can predict actually can’t.”

> We cannot change our minds

“Belief preseverance: The tendency not to reverse opinions you already have.” … “By a mental mechanism I call naive empiricism, we have a natural tendency to look for instances that confirm our story and our vision of the world – these instances are always easy to find. Alas, with tools, and fools, anything can be easy to find.” … “Risk Manager: A Person who uses Models of the Past!”

> Running in the wrong direction

“It has been more profitable for us to bind together in the wrong direction than to be alone in the right one. Those who have followed the assertive idiot rather than the introspective wise person have passed us some of their genes. This is apparent from a social pathology: psychopaths rally followers.”

> Today Inconsistency rules

“So if people make inconsistent choices and decisions, the central core of economic optimization fails. You can no longer produce a ‘general theory’, and without one you cannot predict. You have to learn to live without a general theory, for Pluto’s sake!”
“Randomness is incomplete information. Randomness is unknowledge.”

> Why on earth do we plan?

“Planning may come with the package of what makes us human, namely our consciousness … the ability to project effectively frees from immediate, first-order natural selection … In a way, projecting allows us to cheat evolution: it now takes place in our head, as a series of projections and counterfactual scenarios.”

> What can we do?

We all should keep in mind the above, when meeting risk managers or foresight managers, or encounter fantastic prediction tools, be very cautious and alert and sceptic.

“Don’t ask the barber if you need a haircut! …
Before we knew about bacteria, and their role in diseases, doctors rejected the practice of hand washing because it made no sense to them, despite the evidence of a meaningful decrease in hospital deaths.”

“The strategy for the discoverers and entrepreneurs is to rely less on top-down planning and focus on maximum tinkering and recognizing opportunities when they present themselves.” … “Indeed the normal is often irrelevant.”

“The way to avoid the ills of the narrative fallacy is to favor experimentation over storytelling, experience over history and clinical knowledge over theory. Being empirical does not mean running a lab in one’s basement: it is just a mind-set that favors a certain class of knowledge over others.”