The Black Swan: The Impact of the Highly Improbable

“lack rigor,” and will bring examples of those who do, not those who don’t. Economics books that deal with uncertainty:carter et al. (1962), shackle (1961, 1973),

Hayek (1994). Hirshleifer and Riley (1992) fits uncertainty into neoclassical economics. Incomputability:for earthquakes, see freedman and stark (2003) (courtesy of Gur Huberman).

Academiaand philistinism:there is a round-trip fallacy; if academia means rigor (which I doubt, since what I saw called “peer reviewing” is too often a masquerade), nonaca-demic does not imply nonrigorous. Why do I doubt the “rigor”? By the confirmation bias they show you their contributions yet in spite of the high number of laboring academics, a relatively minute fraction of our results come from them. A disproportionately high number of contributions come from freelance researchers and those dissingly called amateurs: Darwin, Freud, Marx, Mandelbrot, even the early Einstein. Influence on the part of an academic is usually accidental. This even held in the Middle Ages and the Renaissance, see Le Goff (1985). Also, the Enlightenment figures (Voltaire, Rousseau, d’Holbach, Diderot, Montesquieu) were all nonacademics at a time when academia was large.

CHAPTER 10

Overconfidence:albert and Raiffa (1982) (though apparently the paper languished for a decade before formal publication). Lichtenstein and, Fischhoff (1977) showed that overconfidence can be influenced by item difficulty; it typically diminishes and turns into underconfldence in easy items (compare with Armelius [1979]). Plenty of papers since have tried to pin down the conditions of calibration failures or robustness (be they task training, ecological aspects of the domain, level of education, or nationality): Dawes (1980), Koriat, Lichtenstein, and Fischhoff (1980), Mayseless and Kruglanski (1987), Dunning et al. (1990), Ayton and McClelland (1997), Gervais and Odean (1999), Griffin and Varey (1996), Juslin (1991, 1993, 1994), Juslin and Olsson (1997), Kadane and Lichtenstein (1982), May (1986), McClelland and Bolger (1994), Pfeifer (1994), Russo and Schoernaker (1992), Klayman et al. (1999). Note the decrease (unexpectedly) in overconfidence under group decisions: see Sniezek and Henry (1989)—and solutions in Pious (1995). I am suspicious here of the Medioc-ristan/Extremistan distinction and the unevenness of the variables. Alas, I found no paper making this distinction. There are also solutions in Stoll (1996), Arkes et al. (1987). For overconfidence in finance, see Thorley (1999) and Barber and Odean (1999). For cross-boundaries effects, Yates et al. (1996, 1998), Angele et al. (1982). For simultaneous overconfidence and underconfldence, see Erev, Wallsten, and Budescu (1994).

Frequency vs. probability—the ecological problem: Hoffrage and Gigerenzer (1998) think that overconfidence is less significant when the problem is expressed in frequencies as opposed to probabilities. In fact, there has been a debate about the difference between “ecology” and laboratory; see Gigerenzer et al. (2000), Gigerenzer and Richter (1990), and Gigerenzer (1991). We are “fast and frugal” (Gigerenzer and Goldstein [1996]). As far as the Black Swan is concerned, these problems of ecology do not arise: we do not live in an environment in which we are supplied with frequencies or, more generally, for which we are fit. Also in ecology, Spariosu (2004) for the ludic aspect, Cosmides and Tooby (1990). Leary (1987) for Brunswikian ideas, as well as Brunswik (1952).

Lackof awarenessof ignorance:“in short, the same knowledge that underlies the ability to produce correct judgment is also the knowledge that underlies the ability to recognize correct judgment. To lack the former is to be deficient in the latter.” From Kruger and Dunning (1999).

Expert problem in isolation: Isee the expert problem as indistinguishable from Matthew effects and Extremism fat tails (more later), yet I found no such link in the literatures of sociology and psychology.

Clinical knowledge and its problems:see meehl (1954) and Dawes, Faust, and Meehl (1989). Most entertaining is the essay “Why I Do Not Attend Case Conferences” in Meehl (1973). See also Wagenaar and Keren (1985, 1986).

Financial analysts, herding, and forecasting:see guedj and bouchaud (2006), abarbanell and Bernard (1992), Chen et al. (2002), De Bondt and Thaler (1990), Easterwood and Nutt (1999), Friesen and Weller (2002), Foster (1977), Hong and Kubik (2003), Jacob et al. (1999), Lim (2001), Liu (1998), Maines and Hand (1996), Mendenhall (1991), Mikhail et al. (1997,1999), Zitzewitz (2001), and El-Galfy and Forbes (2005). For a comparison with weather forecasters (unfavorable): Tyszka and Zielonka (2002).