The Black Swan: The Impact of the Highly Improbable

Balzac presents to us the sorry state of contemporary literature when Lucien’s manuscript is rejected by a publisher who has never read it; later on, when Lucien’s reputation has developed, the very same manuscript is accepted by another publisher who did not read it either! The work itself was a secondary consideration.

In another example of silent evidence, the book’s characters keep bemoaning that things are no longer as they were before, implying that literary fairness prevailed in more ancient times—as if there was no cemetery before. They fail to take into account the nightingales among the ancients’ work! Notice that close to two centuries ago people had an idealized opinion of their own past, just as we have an idealized opinion of today’s past.

I mentioned earlier that to understand successes and analyze what caused them, we need to study the traits present in failures. It is to a more general version of this point that I turn next.

How to Become a Millionaire in Ten Steps

Numerous studies of millionaires aimed at figuring out the skills required for hotshotness follow the following methodology. They take a population of hotshots, those with big titles and big jobs, and study their attributes. They look at what those big guns have in common: courage, risk taking, optimism, and so on, and infer that these traits, most notably risk taking, help you to become successful. You would also probably get the same impression if you read CEOs’ ghostwritten autobiographies or attended their presentations to fawning MBA students.

Now take a look at the cemetery. It is quite difficult to do so because people who fail do not seem to write memoirs, and, if they did, those business publishers I know would not even consider giving them the courtesy of a returned phone call (as to returned e-mail, fuhgedit). Readers would not pay $26.95 for a story of failure, even if you convinced them that it had more useful tricks than a story of success.[25] The entire notion of biography is grounded in the arbitrary ascription of a causal relation between specified traits and subsequent events. Now consider the cemetery. The graveyard of failed persons will be full of people who shared the following traits: courage, risk taking, optimism, et cetera. Just like the population of millionaires. There may be some differences in skills, but what truly separates the two is for the most part a single factor: luck. Plain luck.

You do not need a lot of empiricism to figure this out: a simple thought experiment suffices. The fund-management industry claims that some people are extremely skilled, since year after year they have outperformed the market. They will identify these “geniuses” and convince you of their abilities. My approach has been to manufacture cohorts of purely random investors and, by simple computer simulation, show how it would be impossible to not have these geniuses produced just by luck. Every year you fire the losers, leaving only the winners, and thus end up with long-term steady winners. Since you do not observe the cemetery of failed investors, you will think that it is a good business, and that some operators are considerably better than others. Of course an explanation will be readily provided for the success of the lucky survivors: “He eats tofu,” “She works late; just the other day I called her office at eight P.M. …” Or of course, “She is naturally lazy. People with that type of laziness can see things clearly.” By the mechanism of retrospective determinism we will find the “cause”—actually, we need to see the cause. I call these simulations of hypothetical cohorts, often done by computer, an engine of computational epistemology. Your thought experiments can be run on a computer. You just simulate an alternative world, plain random, and verify that it looks similar to the one in which we live. Not getting lucky billionaires in these experiments would be the exception.[26]

Recall the distinction between Mediocristan and Extremistan in Chapter 3. I said that taking a “scalable” profession is not a good idea, simply because there are far too few winners in these professions. Well, these professions produce a large cemetery: the pool of starving actors is larger than the one of starving accountants, even if you assume that, on average, they earn the same income.

A HEALTH CLUB FOR RATS