The Black Swan: The Impact of the Highly Improbable

Now, if I told you that it is possible to run into someone who weighs several thousand tons, or stands several hundred miles tall, you would be perfectly justified in having my frontal lobe examined, or in suggesting that I switch to science-fiction writing. But you cannot so easily rule out extreme variations with a different brand of quantities, to which we turn next.

The Strange Country of Extremistan

Consider by comparison the net worth of the thousand people you lined up in the stadium. Add to them the wealthiest person to be found on the planet—say, Bill Gates, the founder of Microsoft. Assume his net worth to be close to $80 billion—with the total capital of the others around a few million. How much of the total wealth would he represent? 99.9 percent? Indeed, all the others would represent no more than a rounding error for his net worth, the variation of his personal portfolio over the past second. For someone’s weight to represent such a share, he would need to weigh fifty million pounds!

Try it again with, say, book sales. Line up a thousand authors (or people begging to get published, but calling themselves authors instead of waiters), and check their book sales. Then add the living writer who (currently) has the most readers. J. K. Rowling, the author of the Harry Potter series, with several hundred million books sold, will dwarf the remaining thousand authors with, say, collectively, a few hundred thousand readers at most.

Try it also with academic citations (the mention of one academic by another academic in a formal publication), media references, income, company size, and so on. Let us call these social matters, as they are man-made, as opposed to physical ones, like the size of waistlines.

In Extremistan, inequalities are such that one single observation can disproportionately impact the aggregate, or the total.

So while weight, height, and calorie consumption are from Mediocristan, wealth is not. Almost all social matters are from Extremistan. Another way to say it is that social quantities are informational, not physical: you cannot touch them. Money in a bank account is something important, but certainly not physical. As such it can take any value without necessitating the expenditure of energy. It is just a number!

Note that before the advent of modern technology, wars used to belong to Mediocristan. It is hard to kill many people if you need to slaughter them one at the time. Today, with tools of mass destruction, all it takes is a button, a nutcase, or a small error to wipe out the planet.

Look at the implication for the Black Swan. Extremistan can produce Black Swans, and does, since a few occurrences have had huge influences on history. This is the main idea of this book.

Extremistan and Knowledge

While this distinction (between Mediocristan and Extremistan) has severe ramifications for both social fairness and the dynamics of events, let us see its application to knowledge, which is where most of its value lies. If a Martian came to earth and engaged in the business of measuring the heights of the denizens of this happy planet, he could safely stop at a hundred humans to get a good picture of the average height. If you live in Mediocristan, you can be comfortable with what you have measured—provided that you know for sure that it comes from Mediocristan. You can also be comfortable with what you have learned from the data. The epistemological consequence is that with Mediocristan-style randomness it is not possible[13] to have a Black Swan surprise such that a single event can dominate a phenomenon. Primo, the first hundred days should reveal all you need to know about the data. Secondo, even if you do have a surprise, as we saw in the case of the heaviest human, it would not be consequential.

If you are dealing with quantities from Extremistan, you will have trouble figuring out the average from any sample since it can depend so much on one single observation. The idea is not more difficult than that. In Extremistan, one unit can easily affect the total in a disproportionate way. In this world, you should always be suspicious of the knowledge you derive from data. This is a very simple test of uncertainty that allows you to distinguish between the two kinds of randomness. Capish?

What you can know from data in Mediocristan augments very rapidly with the supply of information. But knowledge in Extremistan grows slowly and erratically with the addition of data, some of it extreme, possibly at an unknown rate.

Wild and Mild

If we follow my distinction of scalable versus nonscalable, we can see clear differences shaping up between Mediocristan and Extremistan. Here are a few examples.