The Black Swan: The Impact of the Highly Improbable

Bleed or blowup: Gladwell (2002) and Taleb (2004c). Why bleed is painful can be explained by dull stress; Sapolsky et al. (2003) and Sapolsky (1998). For how companies like steady returns, Degeorge and Zeckhauser (1999). Poetics of hope: Mihailescu (2006).

Discontinuities and jumps: classified by rené thorn as constituting seven classes; Thorn (1980).

Evolution and small probabilities: consider also the naïve evolutionary thinking positing the “optimality” of selection. The founder of sociobiology, the great E. O. Wilson, does not agree with such optimality when it comes to rare events. In Wilson (2002), he writes:

The human brain evidently evolved to commit itself emotionally only to a small piece of geography, a limited band of kinsmen, and two or three generations into the future. To look neither far ahead nor far afield is elemental in a Darwinian sense. We are innately inclined to ignore any distant possibility not yet requiring examination. It is, people say, just good common sense. Why do they think in this shortsighted way?

The reason is simple: it is a hardwired part of our Paleolithic heritage. For hundreds of millennia, those who worked for short-term gain within a small circle of relatives and friends lived longer and left more offspring—even when their collective striving caused their chiefdoms and empires to crumble around them. The long view that might have saved their distant descendants required a vision and extended altruism instinctively difficult to marshal.

See also Miller(2000):“Evolution has no foresight. It lacks the long-term vision of drug company management. A species can’t raise venture capital to pay its bills while its research team. . .This makes it hard to explain innovations.”note that neither author considered my age argument.

CHAPTER 8

Silent evidence bears the name wrong reference class in the nasty field of philosophy of probability, anthropic bias in physics, and survivorship bias in statistics (economists present the interesting attribute of having rediscovered it a few times while being severely

fooled by it).

Confirmation:bacon says in On Truth, “No pleasure is comparable to the standing upon the vantage ground of truth (a hill not to be commanded and where the air is always clear and serene), and to see the errors, and wanderings, and mists, and tempests, in the vale below.” This easily shows how great intentions can lead to the confirmation fallacy.

Bacon did not understand the empiricists:he was looking for the golden mean. again,from On Truth:

There are three sources of error and three species of false philosophy; the

sophistic, the empiric and the superstitious____Aristotle affords the most

eminent instance of the first; for he corrupted natural philosophy by logic—thus he formed the world of categories. . . . Nor is much stress to be laid on his frequent recourse to experiment in his books on animals, his problems and other treatises, for he had already decided, without having properly consulted experience as the basis of his decisions and axioms. . . . The empiric school produces dogmas of a more deformed and monstrous nature than the sophistic or theoretic school; not being founded in the light of common notions (which however poor and superstitious, is yet in a manner universal and of general tendency), but in the confined obscurity of a few experiments.

Bacon’s misconception may be the reason it took us a while to understand that they treated history (and experiments) as mere and vague “guidance,” i.e., epilogy.

Publishing:allen (2005), klebanoff (2002), Epstein (2001), de Bellaigue (2004), and Blake (1999). For a funny list of rejections, see Bernard (2002) and White (1982). Michael Korda’s memoir, Korda (2000), adds some color to the business. These books are anecdotal, but we will see later that books follow steep scale-invariant structures with the implication of a severe role for randomness.

Anthropic bias:see the wonderful and comprehensive discussion in Bostrom (2002). In physics, see Barrow and Tipler (1986) and Rees (2004). Sornette (2004) has Gott’s derivation of survival as a power law. In finance, Sullivan et al. (1999) discuss survivorship bias. See also Taleb (2004a). Studies that ignore the bias and state inappropriate conclusions: Stanley and Danko (1996) and the more foolish Stanley (2000).