The Black Swan: The Impact of the Highly Improbable

We have seen how good we are at narrating backward, at inventing stories that convince us that we understand the past. For many people, knowledge has the remarkable power of producing confidence instead of measurable aptitude. Another problem: the focus on the (inconsequential) regular, the Platoniflcation that makes the forecasting “inside the box.”

I find it scandalous that in spite of the empirical record we continue to project into the future as if we were good at it, using tools and methods that exclude rare events. Prediction is firmly institutionalized in our world. We are suckers for those who help us navigate uncertainty, whether the fortune-teller or the “well-published” (dull) academics or civil servants using phony mathematics.

From Yogi Berra to Henri Poincaré

The great baseball coach Yogi Berra has a saying, “It is tough to make predictions, especially about the future.” While he did not produce the writings that would allow him to be considered a philosopher, in spite of his wisdom and intellectual abilities, Berra can claim to know something about randomness. He was a practitioner of uncertainty, and, as a baseball player and coach, regularly faced random outcomes, and had to face their results deep into his bones.

In fact, Yogi Berra is not the only thinker who thought about how much of the future lies beyond our abilities. Many less popular, less pithy, but not less competent thinkers than he have examined our inherent limitations in this regard, from the philosophers Jacques Hadamard and Henri Poincaré (commonly described as mathematicians), to the philosopher Friedrich von Hayek (commonly described, alas, as an economist), to the philosopher Karl Popper (commonly known as a philosopher). We can safely call this the Berra-Hadamard-Poincaré-Hayek-Popper conjecture, which puts structural, built-in limits to the enterprise of predicting.

“The future ain’t what it used to be,” Berra later said.[29] He seems to have been right: the gains in our ability to model (and predict) the world may be dwarfed by the increases in its complexity—implying a greater and greater role for the unpredicted. The larger the role of the Black Swan, the harder it will be for us to predict. Sorry.

Before going into the limits of prediction, we will discuss our track record in forecasting and the relation between gains in knowledge and the offsetting gains in confidence.

Chapter Ten: THE SCANDAL OF PREDICTION

Welcome to Sydney—How many lovers did she have?—How to be an economist, wear a nice suit, and make friends—Not right, just “almost” right—Shallow rivers can have deep spots

One March evening, a few men and women were standing on the esplanade overlooking the bay outside the Sydney Opera House. It was close to the end of the summer in Sydney, but the men were wearing jackets despite the warm weather. The women were more thermally comfortable than the men, but they had to suffer the impaired mobility of high heels.

They all had come to pay the price of sophistication. Soon they would listen for several hours to a collection of oversize men and women singing endlessly in Russian. Many of the opera-bound people looked like they worked for the local office of J. P. Morgan, or some other financial institution where employees experience differential wealth from the rest of the local population, with concomitant pressures on them to live by a sophisticated script (wine and opera). But I was not there to take a peek at the neosophisticates. I had come to look at the Sydney Opera House, a building that adorns every Australian tourist brochure. Indeed, it is striking, though it looks like the sort of building architects create in order to impress other architects.

That evening walk in the very pleasant part of Sydney called the Rocks was a pilgrimage. While Australians were under the illusion that they had built a monument to distinguish their skyline, what they had really done was to construct a monument to our failure to predict, to plan, and to come to grips with our unknowledge of the future—our systematic underestimation of what the future has in store.