The Black Swan

by Nassim Nicholas Taleb

  Next, let us see how this lack of understanding of abstract matters affects us.

  The Pull of the Sensational

  Indeed, abstract statistical information does not sway us as much as the anecdote—no matter how sophisticated the person. I will give a few instances.

  The Italian Toddler. In the late 1970s, a toddler fell into a well in Italy. The rescue team could not pull him out of the hole and the child stayed at the bottom of the well, helplessly crying. Understandably, the whole of Italy was concerned with his fate; the entire country hung on the frequent news updates. The child’s cries produced acute pains of guilt in the powerless rescuers and reporters. His picture was prominently displayed on magazines and newspapers, and you could hardly walk in the center of Milan without being reminded of his plight.

  Meanwhile, the civil war was raging in Lebanon, with an occasional hiatus in the conflict. While in the midst of their mess, the Lebanese were also absorbed in the fate of that child. The Italian child. Five miles away, people were dying from the war, citizens were threatened with car bombs, but the fate of the Italian child ranked high among the interests of the population in the Christian quarter of Beirut. “Look how cute that poor thing is,” I was told. And the entire town expressed relief upon his eventual rescue.

  As Stalin, who knew something about the business of mortality, supposedly said, “One death is a tragedy; a million is a statistic.” Statistics stay silent in us.

  Terrorism kills, but the biggest killer remains the environment, responsible for close to 13 million deaths annually. But terrorism causes outrage, which makes us overestimate the likelihood of a potential terrorist attack—and react more violently to one when it happens. We feel the sting of man-made damage far more than that caused by nature.

  Central Park. You are on a plane on your way to spend a long (bibulous) weekend in New York City. You are sitting next to an insurance salesman who, being a salesman, cannot stop talking. For him, not talking is the effortful activity. He tells you that his cousin (with whom he will celebrate the holidays) worked in a law office with someone whose brother-in-law’s business partner’s twin brother was mugged and killed in Central Park. Indeed, Central Park in glorious New York City. That was in 1989, if he remembers it well (the year is now 2007). The poor victim was only thirty-eight and had a wife and three children, one of whom had a birth defect and needed special care at Cornell Medical Center. Three children, one of whom needed special care, lost their father because of his foolish visit to Central Park.

  Well, you are likely to avoid Central Park during your stay. You know you can get crime statistics from the Web or from any brochure, rather than anecdotal information from a verbally incontinent salesman. But you can’t help it. For a while, the name Central Park will conjure up the image of that that poor, undeserving man lying on the polluted grass. It will take a lot of statistical information to override your hesitation.

  Motorcycle Riding. Likewise, the death of a relative in a motorcycle accident is far more likely to influence your attitude toward motorcycles than volumes of statistical analyses. You can effortlessly look up accident statistics on the Web, but they do not easily come to mind. Note that I ride my red Vespa around town, since no one in my immediate environment has recently suffered an accident—although I am aware of this problem in logic, I am incapable of acting on it.

  Now, I do not disagree with those recommending the use of a narrative to get attention. Indeed, our consciousness may be linked to our ability to concoct some form of story about ourselves. It is just that narrative can be lethal when used in the wrong places.

  THE SHORTCUTS

  Next I will go beyond narrative to discuss the more general attributes of thinking and reasoning behind our crippling shallowness. These defects in reasoning have been cataloged and investigated by a powerful research tradition represented by a school called the Society of Judgment and Decision Making (the only academic and professional society of which I am a member, and proudly so; its gatherings are the only ones where I do not have tension in my shoulders or anger fits). It is associated with the school of research started by Daniel Kahneman, Amos Tversky, and their friends, such as Robyn Dawes and Paul Slovic. It is mostly composed of empirical psychologists and cognitive scientists whose methodology hews strictly to running very precise, controlled experiments (physics-style) on humans and making catalogs of how people react, with minimal theorizing. They look for regularities. Note that empirical psychologists use the bell curve to gauge errors in their testing methods, but as we will see more technically in Chapter 15, this is one of the rare adequate applications of the bell curve in social science, owing to the nature of the experiments. We have seen such types of experiments earlier in this chapter with the flood in California, and with the identification of the confirmation bias in Chapter 5. These researchers have mapped our activities into (roughly) a dual mode of thinking, which they separate as “System 1” and “System 2,” or the experiential and the cogitative. The distinction is straightforward.

  System 1, the experiential one, is effortless, automatic, fast, opaque (we do not know that we are using it), parallel-processed, and can lend itself to errors. It is what we call “intuition,” and performs these quick acts of prowess that became popular under the name blink, after the title of Malcolm Gladwell’s bestselling book. System 1 is highly emotional, precisely because it is quick. It produces shortcuts, called “heuristics,” that allow us to function rapidly and effectively. Dan Goldstein calls these heuristics “fast and frugal.” Others prefer to call them “quick and dirty.” Now, these shortcuts are certainly virtuous, since they are rapid, but, at times, they can lead us into some severe mistakes. This main idea generated an entire school of research called the heuristics and biases approach (heuristics corresponds to the study of shortcuts, biases stand for mistakes).

  System 2, the cogitative one, is what we normally call thinking. It is what you use in a classroom, as it is effortful (even for Frenchmen), reasoned, slow, logical, serial, progressive, and self-aware (you can follow the steps in your reasoning). It makes fewer mistakes than the experiential system, and, since you know how you derived your result, you can retrace your steps and correct them in an adaptive manner.

  Most of our mistakes in reasoning come from using System 1 when we are in fact thinking that we are using System 2. How? Since we react without thinking and introspection, the main property of System 1 is our lack of awareness of using it!

  Recall the round-trip error, our tendency to confuse “no evidence of Black Swans” with “evidence of no Black Swans;” it shows System 1 at work. You have to make an effort (System 2) to override your first reaction. Clearly Mother Nature makes you use the fast System 1 to get out of trouble, so that you do not sit down and cogitate whether there is truly a tiger attacking you or if it is an optical illusion. You run immediately, before you become “conscious” of the presence of the tiger.

  Emotions are assumed to be the weapon System 1 uses to direct us and force us to act quickly. It mediates risk avoidance far more effectively than our cognitive system. Indeed, neurobiologists who have studied the emotional system show how it often reacts to the presence of danger long before we are consciously aware of it—we experience fear and start reacting a few milliseconds before we realize that we are facing a snake.

  Much of the trouble with human nature resides in our inability to use much of System 2, or to use it in a prolonged way without having to take a long beach vacation. In addition, we often just forget to use it.

  Beware the Brain

  Note that neurobiologists make, roughly, a similar distinction to that between System 1 and System 2, except that they operate along anatomical lines. Their distinction differentiates between parts of the brain, the cortical part, which we are supposed to use for thinking, and which distinguishes us from other animals, and the fast-reacting limbic brain, which is the center of emotions, and which we share with other mammals.

  As a skept
ical empiricist, I do not want to be the turkey, so I do not want to focus solely on specific organs in the brain, since we do not observe brain functions very well. Some people try to identify what are called the neural correlates of, say, decision making, or more aggressively the neural “substrates” of, say, memory. The brain might be more complicated machinery than we think; its anatomy has fooled us repeatedly in the past. We can, however, assess regularities by running precise and thorough experiments on how people react under certain conditions, and keep a tally of what we see.

  For an example that justifies skepticism about unconditional reliance on neurobiology, and vindicates the ideas of the empirical school of medicine to which Sextus belonged, let’s consider the intelligence of birds. I kept reading in various texts that the cortex is where animals do their “thinking,” and that the creatures with the largest cortex have the highest intelligence—we humans have the largest cortex, followed by bank executives, dolphins, and our cousins the apes. Well, it turns out that some birds, such as parrots, have a high level of intelligence, equivalent to that of dolphins, but that the intelligence of birds correlates with the size of another part of the brain, called the hyperstriatum. So neurobiology with its attribute of “hard science” can sometimes (though not always) fool you into a Platonified, reductive statement. I am amazed that the “empirics,” skeptical about links between anatomy and function, had such insight—no wonder their school played a very small part in intellectual history. As a skeptical empiricist I prefer the experiments of empirical psychology to the theories-based MRI scans of neurobiologists, even if the former appear less “scientific” to the public.

  How to Avert the Narrative Fallacy

  I’ll conclude by saying that our misunderstanding of the Black Swan can be largely attributed to our using System 1, i.e., narratives, and the sensational—as well as the emotional—which imposes on us a wrong map of the likelihood of events. On a day-to-day basis, we are not introspective enough to realize that we understand what is going on a little less than warranted from a dispassionate observation of our experiences. We also tend to forget about the notion of Black Swans immediately after one occurs—since they are too abstract for us—focusing, rather, on the precise and vivid events that easily come to our minds. We do worry about Black Swans, just the wrong ones.

  Let me bring Mediocristan into this. In Mediocristan, narratives seem to work—the past is likely to yield to our inquisition. But not in Extremistan, where you do not have repetition, and where you need to remain suspicious of the sneaky past and avoid the easy and obvious narrative.

  Given that I have lived largely deprived of information, I’ve often felt that I inhabit a different planet than my peers, which can sometimes be extremely painful. It’s like they have a virus controlling their brains that prevents them from seeing things going forward—the Black Swan around the corner.

  The way to avoid the ills of the narrative fallacy is to favor experimentation over storytelling, experience over history, and clinical knowledge over theories. Certainly the newspaper cannot perform an experiment, but it can choose one report over another—there is plenty of empirical research to present and interpret from—as I am doing in this book. Being empirical does not mean running a laboratory in one’s basement: it is just a mind-set that favors a certain class of knowledge over others. I do not forbid myself from using the word cause, but the causes I discuss are either bold speculations (presented as such) or the result of experiments, not stories.

  Another approach is to predict and keep a tally of the predictions.

  Finally, there may be a way to use a narrative—but for a good purpose. Only a diamond can cut a diamond; we can use our ability to convince with a story that conveys the right message—what storytellers seem to do.

  So far we have discussed two internal mechanisms behind our blindness to Black Swans, the confirmation bias and the narrative fallacy. The next chapters will look into an external mechanism: a defect in the way we receive and interpret recorded events, and a defect in the way we act on them.

  * The word the is written twice.

  * The Parisian novelist Georges Perec tried to break away from narrative and attempted to write a book as large as the world. He had to settle for an exhaustive account of what happened on the Place Saint-Sulpice between October 18 and October 20, 1974. Even so, his account was not so exhaustive, and he ended up with a narrative.

  * Such tests avoid both the narrative fallacy and much of the confirmation bias, since testers are obliged to take into account the failures as well as the successes of their experiments.

  Chapter Seven

  LIVING IN THE ANTECHAMBER OF HOPE

  How to avoid watercoolers—Select your brother-in-law—Yevgenia’s favorite book—What deserts can and cannot deliver—On the avoidance of hope—El desierto de los tártaros—The virtues of slow motion

  Assume that, like Yevgenia, your activities depend on a Black Swan surprise—i.e., you are a reverse turkey. Intellectual, scientific, and artistic activities belong to the province of Extremistan, where there is a severe concentration of success, with a very small number of winners claiming a large share of the pot. This seems to apply to all professional activities I find nondull and “interesting” (I am still looking for a single counterexample, a nondull activity that belongs to Mediocristan).

  Acknowledging the role of this concentration of success, and acting accordingly, causes us to be punished twice: we live in a society where the reward mechanism is based on the illusion of the regular; our hormonal reward system also needs tangible and steady results. It too thinks that the world is steady and well behaved—it falls for the confirmation error. The world has changed too fast for our genetic makeup. We are alienated from our environment.

  PEER CRUELTY

  Every morning you leave your cramped apartment in Manhattan’s East Village to go to your laboratory at the Rockefeller University in the East Sixties. You return in the late evening, and people in your social network ask you if you had a good day, just to be polite. At the laboratory, people are more tactful. Of course you did not have a good day; you found nothing. You are not a watch repairman. Your finding nothing is very valuable, since it is part of the process of discovery—hey, you know where not to look. Other researchers, knowing your results, would avoid trying your special experiment, provided a journal is thoughtful enough to consider your “found nothing” as information and publish it.

  Meanwhile your brother-in-law is a salesman for a Wall Street firm, and keeps getting large commissions—large and steady commissions. “He is doing very well,” you hear, particularly from your father-in-law, with a small pensive nanosecond of silence after the utterance—which makes you realize that he just made a comparison. It was involuntary, but he made one.

  Holidays can be terrible. You run into your brother-in-law at family reunions and, invariably, detect unmistakable signs of frustration on the part of your wife, who, briefly, fears that she married a loser, before remembering the logic of your profession. But she has to fight her first impulse. Her sister will not stop talking about their renovations, their new wallpaper. Your wife will be a little more silent than usual on the drive home. This sulking will be made slightly worse because the car you are driving is rented, since you cannot afford to garage a car in Manhattan. What should you do? Move to Australia and thereby make family reunions less frequent, or switch brothers-in-laws by marrying someone with a less “successful” brother?

  Or should you dress like a hippie and become defiant? That may work for an artist, but not so easily for a scientist or a businessman. You are trapped.

  You work on a project that does not deliver immediate or steady results; all the while, people around you work on projects that do. You are in trouble. Such is the lot of scientists, artists, and researchers lost in society rather than living in an insulated community or an artist colony.

  Positive lumpy outcomes, for which we either collect big or get nothing, pre
vail in numerous occupations, those invested with a sense of mission, such as doggedly pursuing (in a smelly laboratory) the elusive cure for cancer, writing a book that will change the way people view the world (while living hand to mouth), making music, or painting miniature icons on subway trains and considering it a higher form of art despite the diatribes of the antiquated “scholar” Harold Bloom.

  If you are a researcher, you will have to publish inconsequential articles in “prestigious” publications so that others say hello to you once in a while when you run into them at conferences.

  If you run a public corporation, things were great for you before you had shareholders, when you and your partners were the sole owners, along with savvy venture capitalists who understood uneven results and the lumpy nature of economic life. But now you have a slow-thinking thirty-year-old security analyst at a downtown Manhattan firm who “judges” your results and reads too much into them. He likes routine rewards, and the last thing you can deliver are routine rewards.