The Black Swan: The Impact of the Highly Improbable

We love the tangible, the confirmation, the palpable, the real, the visible, the concrete, the known, the seen, the vivid, the visual, the social, the embedded, the emotionally laden, the salient, the stereotypical, the moving, the theatrical, the romanced, the cosmetic, the official, the scholarly-sounding verbiage (b******t), the pompous Gaussian economist, the mathematicized crap, the pomp, the Académie Française, Harvard Business School, the Nobel Prize, dark business suits with white shirts and Ferragamo ties, the moving discourse, and the lurid. Most of all we favor the narrated.

Alas, we are not manufactured, in our current edition of the human race, to understand abstract matters—we need context. Randomness and uncertainty are abstractions. We respect what has happened, ignoring what could have happened. In other words, we are naturally shallow and superficial—and we do not know it. This is not a psychological problem; it comes from the main property of information. The dark side of the moon is harder to see; beaming light on it costs energy. In the same way, beaming light on the unseen is costly in both computational and mental effort.

Distance from Primates

There have been in history many distinctions between higher and lower forms of humans. For the Greeks, there were the Greeks and the barbarians, those people of the north who uttered amorphous sentences similar, to the Attic ear, to an animal’s shrieks. For the English, a higher form of life was the gentleman’s—contrary to today’s definition, a gentleman’s life was practiced through idleness and a code of behavior that included, along with a set of manners, the avoidance of work beyond the necessities of comfortable subsistence. For New Yorkers, there are those with a Manhattan zip code and those with such a thing as a Brooklyn or, worse, Queens address. For the earlier Nietzsche, there was the Apollonian compared to the Dionysian; for the better-known Nietzsche, there was the Ubermensch, something his readers interpret however it suits them. For a modern stoic, a higher individual subscribes to a dignified system of virtue that determines elegance in one’s behavior and the ability to separate results from efforts. All of these distinctions aim at lengthening the distance between us and our relatives among other primates. (I keep insisting that, when it comes to decision making, the distance between us and these hairy cousins is far shorter than we think.)

I propose that if you want a simple step to a higher form of life, as distant from the animal as you can get, then you may have to denarrate, that is, shut down the television set, minimize time spent reading newspapers, ignore the blogs. Train your reasoning abilities to control your decisions; nudge System 1 (the heuristic or experiential system) out of the important ones. Train yourself to spot the difference between the sensational and the empirical. This insulation from the toxicity of the world will have an additional benefit: it will improve your well-being. Also, bear in mind how shallow we are with probability, the mother of all abstract notions. You do not have to do much more in order to gain a deeper understanding of things around you. Above all, learn to avoid “tunneling.”

A bridge here to what is to come. The Platonic blindness I illustrated with the casino story has another manifestation: focusing. To be able to focus is a great virtue if you are a watch repairman, a brain surgeon, or a chess player. But the last thing you need to do when you deal with uncertainty is to “focus” (you should tell uncertainty to focus, not us). This “focus” makes you a sucker; it translates into prediction problems, as we will see in the next section. Prediction, not narration, is the real test of our understanding of the world.

Part 2: WE JUST CAN’T PREDICT

When I ask people to name three recently implemented technologies that most impact our world today, they usually propose the computer, the Internet, and the laser. All three were unplanned, unpredicted, and unappreciated upon their discovery, and remained unappreciated well after their initial use. They were consequential. They were Black Swans. Of course, we have this retrospective illusion of their partaking in some master plan. You can create your own lists with similar results, whether you use political events, wars, or intellectual epidemics.

You would expect our record of prediction to be horrible: the world is far, far more complicated than we think, which is not a problem, except when most of us don’t know it. 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. It is not a Platonic category!