Alex Preston / bookshelf

The Black Swan by Nassim Nicholas Taleb

Preface - we act as though we are able to predict historical events, or, even worse, as if we are able to change the course of history. We produce thirty-year projections of social security deficits and oil prices without realizing that we cannot even predict these for next summer - There are so many things we can do if we focus on antiknowledge, or what we do not know. Among many other benefits, you can set yourself up to collect serendipitous Black Swans (of the positive kind) by maximizing your exposure to them. Indeed, in some domains—such as scientific discovery and venture capital investments—there is a disproportionate payoff from the unknown, since you typically have little to lose and plenty to gain from a rare event. - The strategy for the discoverers and entrepreneurs is to rely less on top-down planning and focus on maximum tinkering and recognizing opportunities when they present themselves. - The strategy is, then, to tinker as much as possible and try to collect as many Black Swan opportunities as you can.

A New Kind of Ingratitude

  • We remember the martyrs who died for a cause that we knew about, never those no less effective in their contribution but whose cause we were never aware of—precisely because they were successful.
  • Who gets rewarded, the central banker who avoids a recession or the one who comes to “correct” his predecessors’ faults and happens to be there during some economic recovery? Who is more valuable, the politician who avoids a war or the one who starts a new one (and is lucky enough to win)? It is the same logic reversal we saw earlier with the value of what we don’t know; everybody knows that you need more prevention than treatment, but few reward acts of prevention.

Life Is Very Unusual

  • If you want to get an idea of a friend’s temperament, ethics, and personal elegance, you need to look at him under the tests of severe circumstances, not under the regular rosy glow of daily life. Can you assess the danger a criminal poses by examining only what he does on an ordinary day? Can we understand health without considering wild diseases and epidemics? Indeed the normal is often irrelevant.

Too Dull to Write About

  • Metaphors and stories are far more potent (alas) than ideas; they are also easier to remember and more fun to read. If I have to go after what I call the narrative disciplines, my best tool is a narrative. Ideas come and go, stories stay.

The Bottom Line

  • I call this overload of examples naïve empiricism—successions of anecdotes selected to fit a story do not constitute evidence.

Chapters Map

  • Note that, by symmetry, the occurrence of a highly improbable event is the equivalent of the nonoccurrence of a highly probable one.
  • Recursive here means that the world in which we live has an increasing number of feedback loops, causing events to be the cause of more events (say, people buy a book because other people bought it), thus generating snowballs and arbitrary and unpredictable planet-wide winner-take-all effects.
  • Part One-Umberto Eco’s Antilibrary, or How We Seek Validation
  • The library should contain as much of what you do not know as your financial means, mortgage rates, and the currently tight real-estate market allow you to put there.
  • Black Swan comes from our misunderstanding of the likelihood of surprises, those unread books, because we take what we know a little too seriously.
  • Let us call an antischolar—someone who focuses on the unread books, and makes an attempt not to treat his knowledge as a treasure, or even a possession, or even a self-esteem enhancement device—a skeptical empiricist.

Anatomy of a Black Swan

  • True, with hindsight, the place may appear more Elysian in the memory of people than it actually was.

On Walking Walks

  • There were some obvious benefits in showing one’s ability to act on one’s opinions, and not compromising an inch to avoid “offending” or bothering others.
  • Had I concealed my participation in the riot (as many friends did) and been discovered, instead of being openly defiant, I am certain that I would have been treated as a black sheep.
  • It is one thing to be cosmetically defiant of authority by wearing unconventional clothes—what social scientists and economists call “cheap signaling”—and another to prove willingness to translate belief into action.
  • You can afford to be compassionate, lax, and courteous if, once in a while, when it is least expected of you, but completely justified, you sue someone, or savage an enemy, just to show that you can walk the walk.

“Paradise” Evaporated

  • Brain drain is hard to reverse, and some of the old refinement may be lost forever.

Dear Diary: On History Running Backward

  • Events present themselves to us in a distorted way. Consider the nature of information: of the millions, maybe even trillions, of small facts that prevail before an event occurs, only a few will turn out to be relevant later to your understanding of what happened.
  • While we have a highly unstable memory, a diary provides indelible facts recorded more or less immediately; it thus allows the fixation of an unrevised perception and enables us to later study events in their own context.


  • If you want to see what I mean by the arbitrariness of categories, check the situation of polarized politics. The next time a Martian visits earth, try to explain to him why those who favor allowing the elimination of a fetus in the mother’s womb also oppose capital punishment. Or try to explain to him why those who accept abortion are supposed to be favorable to high taxation but against a strong military.
  • Any reduction of the world around us can have explosive consequences since it rules out some sources of uncertainty; it drives us to a misunderstanding of the fabric of the world. For instance, you may think that radical Islam (and its values) are your allies against the threat of Communism, and so you may help them develop, until they send two planes into downtown Manhattan.
  • Public information can therefore be useless, particularly to a businessman, since prices can already “include” all such information, and news shared with millions gives you no real advantage. Odds are that one or more of the hundreds of millions of other readers of such information will already have bought the security, thus pushing up the price. I then completely gave up reading newspapers and watching television, which freed up a considerable amount of time (say one hour or more a day, enough time to read more than a hundred additional books per year, which, after a couple of decades, starts mounting).

The Four-Letter Word of Independence

  • It was hard to tell my friends, all hurt in some manner by the crash, about this feeling of vindication. Bonuses at the time were a fraction of what they are today, but if my employer, First Boston, and the financial system survived until year-end, I would get the equivalent of a fellowship. This is sometimes called “f*** you money,” which, in spite of its coarseness, means that it allows you to act like a Victorian gentleman, free from slavery. It is a psychological buffer: the capital is not so large as to make you spoiled-rich, but large enough to give you the freedom to choose a new occupation without excessive consideration of the financial rewards.
  • So I stayed in the quant and trading businesses (I’m still there), but organized myself to do minimal but intense (and entertaining) work, focus only on the most technical aspects, never attend business “meetings,” avoid the company of “achievers” and people in suits who don’t read books, and take a sabbatical year for every three on average to fill up gaps in my scientific and philosophical culture.
  • To slowly distill my single idea, I wanted to become a flâneur, a professional meditator, sit in cafés, lounge, unglued to desks and organization structures, sleep as long as I needed, read voraciously, and not owe any explanation to anybody. I wanted to be left alone in order to build, small steps at a time, an entire system of thought based on my Black Swan idea.

Limousine Philosopher

  • When people at cocktail parties asked me what I did for a living, I was tempted to answer, “I am a skeptical empiricist and a flâneur-reader, someone committed to getting very deep into an idea,” but I made things simple by saying that I was a limousine driver.
  • It is remarkable how fast and how effectively you can construct a nationality with a flag, a few speeches, and a national anthem; to this day I avoid the label “Lebanese,” preferring the less restrictive “Levantine” designation.
  • The historian Niall Ferguson showed that, despite all the standard accounts of the buildup to the Great War, which describe “mounting tensions” and “escalating crises,” the conflict came as a surprise. Only retrospectively was it seen as unavoidable by backward-looking historians. Ferguson used a clever empirical argument to make his point: he looked at the prices of imperial bonds, which normally include investors’ anticipation of government’s financing needs and decline in expectation of conflicts since wars cause severe deficits. But bond prices did not reflect the anticipation of war. Note that this study illustrates, in addition, how working with prices can provide a good understanding of history.
  • Note that I was not able to build a career just by betting on Black Swans—there were not enough tradable opportunities. I could, on the other hand, avoid being exposed to them by protecting my portfolio against large losses. So, in order to eliminate the dependence on randomness, I focused on technical inefficiencies between complicated instruments, and on exploiting these opportunities without exposure to the rare event, before they disappeared as my competitors became technologically advanced. Later on in my career I discovered the easier (and less randomness laden) business of protecting, insurance-style, large portfolios against the Black Swan.

The Best (Worst) Advice

  • A second-year Wharton student told me to get a profession that is “scalable,” that is, one in which you are not paid by the hour and thus subject to the limitations of the amount of your labor.
  • If you are a prostitute, you work by the hour and are (generally) paid by the hour. Furthermore, your presence is (I assume) necessary for the service you provide. If you open a fancy restaurant, you will at best steadily fill up the room (unless you franchise it). In these professions, no matter how highly paid, your income is subject to gravity. Your revenue depends on your continuous efforts more than on the quality of your decisions. Moreover, this kind of work is largely predictable: it will vary, but not to the point of making the income of a single day more significant than that of the rest of your life. In other words, it will not be Black Swan driven.
  • Similarly, a writer expends the same effort to attract one single reader as she would to capture several hundred million. J. K. Rowling, the author of the Harry Potter books, does not have to write each book again every time someone wants to read it. But this is not so for a baker: he needs to bake every single piece of bread in order to satisfy each additional customer.
  • It separates those professions in which one can add zeroes of income with no greater labor from those in which one needs to add labor and time (both of which are in limited supply)—in other words, those subjected to gravity.

The Advent of Scalability

  • A great deal of empiricism has been done on the subject, most notably by Art De Vany, an insightful and original thinker who singlemindedly studied wild uncertainty in the movies.
  • It is hard for us to accept that people do not fall in love with works of art only for their own sake, but also in order to feel that they belong to a community. By imitating, we get closer to others—that is, other imitators.

Scalability and Globalization

  • globalization has allowed the United States to specialize in the creative aspect of things, the production of concepts and ideas, that is, the scalable part of the products, and, increasingly, by exporting jobs, separate the less scalable components and assign them to those happy to be paid by the hour.

Travels Inside Mediocristan

  • When your sample is large, no single instance will significantly change the aggregate or the total. The largest observation will remain impressive, but eventually insignificant, to the sum.

The Strange Country of Extremistan

  • 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.
  • Extremistan and Knowledge

Wild and Mild

  • Matters that seem to belong to Mediocristan (subjected to what we call type 1 randomness): height, weight, calorie consumption, income for a baker, a small restaurant owner, a prostitute, or an orthodontist;
  • Matters that seem to belong to Extremistan (subjected to what we call type 2 randomness): wealth, income, book sales per author, book citations per author, name recognition as a “celebrity,” number of references on Google, populations of cities, uses of words in a vocabulary, numbers of speakers per language, damage caused by earthquakes, deaths in war, deaths from terrorist incidents, sizes of planets, sizes of companies, stock ownership, height between species (consider elephants and mice), financial markets
  • The Extremistan list is much longer than the prior one.

The Tyranny of the Accident

  • Mediocristan is where we must endure the tyranny of the collective, the routine, the obvious, and the predicted; Extremistan is where we are subjected to the tyranny of the singular, the accidental, the unseen, and the unpredicted.
  • They are near–Black Swans. They are somewhat tractable scientifically—knowing about their incidence should lower your surprise; these events are rare but expected. I call this special case of “gray” swans Mandelbrotian randomness. This category encompasses the randomness that produces phenomena commonly known by terms such as scalable, scale-invariant, power laws, Pareto-Zipf laws, Yule’s law, Paretian-stable processes, Levy-stable, and fractal laws,

How to Learn from the Turkey

  • After the stock market crash of 1987 half of America’s traders braced for another one every October—not taking into account that there was no antecedent for the first one. We worry too late—ex post.

Trained to Be Dull

  • In the summer of 1982, large American banks lost close to all their past earnings (cumulatively), about everything they ever made in the history of American banking—everything.
  • A Black Swan Is Relative to Knowledge
  • In general, positive Black Swans take time to show their effect while negative ones happen very quickly—it is much easier and much faster to destroy than to build.
  • This asymmetry in timescales explains the difficulty in reversing time.)
  • Sextus the (Alas) Empirical
  • Among the surviving works of Sextus’s is a diatribe with the beautiful title Adversos Mathematicos, sometimes translated as Against the Professors. Much of it could have been written last Wednesday night!

The Skeptic, Friend of Religion

  • Bayle’s Dictionnaire historique et critique was the most read piece of scholarship of the eighteenth century,
  • Pierre-Daniel Huet wrote his Philosophical Treatise on the Weaknesses of the Human Mind in 1690, a remarkable book that tears through dogmas and questions human perception.
  • Both Huet and Bayle were erudites and spent their lives reading. Huet, who lived into his nineties, had a servant follow him with a book to read aloud to him during meals and breaks and thus avoid lost time.

I Don’t Want to Be a Turkey

  • I am skeptical in matters that have implications for daily life. In a way, all I care about is making a decision without being the turkey.
  • Many middlebrows have asked me over the past twenty years, “How do you, Taleb, cross the street given your extreme risk consciousness?” or have stated the more foolish “You are asking us to take no risks.” Of course I am not advocating total risk phobia (we will see that I favor an aggressive type of risk taking): all I will be showing you in this book is how to avoid crossing the street blindfolded.

They Want to Live in Mediocristan

  • Amaranth, ironically named after a flower that “never dies,” had to shut down after it lost close to $7 billion in a few days,
  • The main tragedy of the high impact-low probability event comes from the mismatch between the time taken to compensate someone and the time one needs to be comfortable that he is not making a bet against the rare event. People have an incentive to bet against it, or to game the system since they can be paid a bonus reflecting their yearly performance when in fact all they are doing is producing illusory profits that they will lose back one day.

Chapter Five-Confirmation Shmonfirmation!

  • call this confusion the round-trip fallacy, since these statements are not interchangeable.
  • Many people confuse the statement “almost all terrorists are Moslems” with “almost all Moslems are terrorists.”
  • The reader might see in this round-trip fallacy the unfairness of stereotypes—minorities in urban areas in the United States have suffered from the same confusion: even if most criminals come from their ethnic subgroup, most of their ethnic subgroup are not criminals, but they still suffer from discrimination by people who should know better.
  • Consider that in a primitive environment there is no consequential difference between the statements most killers are wild animals and most wild animals are killers. There is an error here, but it is almost inconsequential. Our statistical intuitions have not evolved for a habitat in which these subtleties can make a big difference.

Zoogles Are Not All Boogles

  • doctors in the 1960s found it useless because they saw no immediate evidence of its necessity, and so they created a malnourished generation. Fiber, it turns out, acts to slow down the absorption of sugars in the blood and scrapes the intestinal tract of precancerous cells. Indeed medicine has caused plenty of damage throughout history, owing to this simple kind of inferential confusion.


  • we have a natural tendency to look for instances that confirm our story and our vision of the world—these instances are always easy to find. Alas, with tools, and fools, anything can be easy to find.

Negative Empiricism

  • I know what statement is wrong, but not necessarily what statement is correct.
  • If I see someone kill, then I can be practically certain that he is a criminal. If I don’t see him kill, I cannot be certain that he is innocent. The same applies to cancer detection: the finding of a single malignant tumor proves that you have cancer, but the absence of such a finding cannot allow you to say with certainty that you are cancer-free.
  • The person who is credited with the promotion of this idea of one-sided semiskepticism is Sir Doktor Professor Karl Raimund Popper,
  • But it remains the case that you know what is wrong with a lot more confidence than you know what is right.
  • Popper introduced the mechanism of conjectures and refutations, which works as follows: you formulate a (bold) conjecture and you start looking for the observation that would prove you wrong.

Counting to Three

  • disconfirming instances are far more powerful in establishing truth.
  • George Soros, when making a financial bet, keeps looking for instances that would prove his initial theory wrong. This, perhaps, is true self-confidence: the ability to look at the world without the need to find signs that stroke one’s ego.*

Back to Mediocristan

  • It takes a lot more than a thousand days to accept that a writer is ungifted, a market will not crash, a war will not happen, a project is hopeless, a country is “our ally,” a company will not go bust, a brokerage-house security analyst is not a charlatan, or a neighbor will not attack us.

Splitting Brains

  • For me, one such antilogic came with the discovery—thanks to the literature on cognition—that, counter to what everyone believes, not theorizing is an act—that theorizing can correspond to the absence of willed activity, the “default” option. It takes considerable effort to see facts (and remember them) while withholding judgment and resisting explanations.

Andrey Nikolayevich’s Rule

  • Consider that your working memory has difficulty holding a mere phone number longer than seven digits. Change metaphors slightly and imagine that your consciousness is a desk in the Library of Congress: no matter how many books the library holds, and makes available for retrieval, the size of your desk sets some processing limitations. Compression is vital to the performance of conscious work.

Narrative and Therapy

  • How can you do so? Well, with a narrative. Patients who spend fifteen minutes every day writing an account of their daily troubles feel indeed better about what has befallen them. You feel less guilty for not having avoided certain events; you feel less responsible for it.

The Sensational and the Black Swan

  • if instead I asked you many cases of lung cancer are likely to take place because of smoking, odds are that you would give me a much higher number (I would guess more than twice as high). Adding the because makes these matters far more plausible, and far more likely. Cancer from smoking seems more likely than cancer without a cause attached to it—an unspecified cause means no cause at all.

Black Swan Blindness

  • Events that are nonrepeatable are ignored before their occurrence, and overestimated after (for a while).

The Pull of the Sensational

  • abstract statistical information does not sway us as much as the anecdote—no matter how sophisticated the person.
  • 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.

The Shortcuts

  • 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.

Beware the Brain

  • 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.

How to Avert the Narrative Fallacy

  • 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.
  • way to avoid the ills of the narrative fallacy is to favor experimentation over storytelling, experience over history, and clinical knowledge over theories.
  • So far we have discussed two internal mechanisms behind our blindness to Black Swans, the confirmation bias and the narrative fallacy.

Peer Cruelty

  • Your finding nothing is very valuable, since it is part of the process of discovery—hey, you know where not to look.
  • Positive lumpy outcomes, for which we either collect big or get nothing, prevail 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
  • Then bang, the lumpy event comes that brings the grand vindication. Or it may never come. Believe me, it is tough to deal with the social consequences of the appearance of continuous failure. We are social animals; hell is other people.
  • Where the Relevant Is the Sensational
  • For instance, if you study every day, you expect to learn something in proportion to your studies. If you feel that you are not going anywhere, your emotions will cause you to become demoralized. But modern reality rarely gives us the privilege of a satisfying, linear, positive progression: you may think about a problem for a year and learn nothing; then, unless you are disheartened by the emptiness of the results and give up, something will come to you in a flash.


  • These nonlinear relationships are ubiquitous in life. Linear relationships are truly the exception; we only focus on them in classrooms and textbooks because they are easier to understand.
  • You play tennis every day with no improvement, then suddenly you start beating the pro.

Process over Results

  • Process over Results We favor the sensational and the extremely visible. This affects the way we judge heroes. There is little room in our consciousness for heroes who do not deliver visible results—or those heroes who focus on process rather than results.
  • Most people engaged in the pursuits that I call “concentrated” spend most of their time waiting for the big day that (usually) never comes.
  • True, this takes your mind away from the pettiness of life—the cappuccino that is too warm or too cold, the waiter too slow or too intrusive, the food too spicy or not enough, the overpriced hotel room that does not quite resemble the advertised picture—all these considerations disappear because you have your mind on much bigger and better things.
  • Often these Black Swan hunters feel shame, or are made to feel shame, at not contributing.
  • It is my great hope someday to see science and decision makers rediscover what the ancients have always known, namely that our highest currency is respect.
  • when you look at the empirical record, you not only see that venture capitalists do better than entrepreneurs, but publishers do better than writers, dealers do better than artists,

Human Nature, Happiness, and Lumpy Rewards

  • Plenty of mildly good news is preferable to one single lump of great news.
  • Sadly, it may be even worse for you to make $10 million, then lose back nine, than to making nothing at all!
  • So from a narrowly defined accounting point of view, which I may call here “hedonic calculus,” it does not pay to shoot for one large win. Mother Nature destined us to derive enjoyment from a steady flow of pleasant small, but frequent, rewards. As I said, the rewards do not have to be large, just frequent—a little bit here, a little bit there.
  • It is better to lump all your pain into a brief period rather than have it spread out over a longer one.

The Antechamber of Hope

  • Those who talk about books as commodities are inauthentic, just as those who collect acquaintances can be superficial in their friendships.

When You Need the Bastiani Fortress

  • Indeed, we have very few historical records of people who have achieved anything extraordinary without such peer validation—but we have the freedom to choose our peers.
  • The members of the group can be ostracized together—which is better than being ostracized alone. If you engage in a Black Swan–dependent activity, it is better to be part of a group.

El desierto de los tártaros

  • Nero had a stiff gait since he was recovering from a helicopter crash—he gets a little too arrogant after episodes of success and starts taking uncalculated physical risks, though he remains financially hyperconservative, even paranoid.
  • Nero would identify with Giovanni Drogo, the main character of Il deserto.

Bleed or Blowup

  • Let us separate the world into two categories. Some people are like the turkey, exposed to a major blowup without being aware of it, while others play reverse turkey, prepared for big events that might surprise others. In some strategies and life situations, you gamble dollars to win a succession of pennies while appearing to be winning all the time. In others, you risk a succession of pennies to win dollars. In other words, you bet either that the Black Swan will happen or that it will never happen, two strategies that require completely different mind-sets.
  • Against that background of potential blowup disguised as skills, Nero engaged in a strategy that he called “bleed.” You lose steadily, daily, for a long time, except when some event takes place for which you get paid disproportionately well. No single event can make you blow up, on the other hand—some changes in the world can produce extraordinarily large profits that pay back such bleed for years, sometimes decades, sometimes even centuries.
  • Nero came of age, intellectually speaking, with the stock market crash of 1987, in which he derived monstrous returns on what small equity he controlled. This episode would forever make his track record valuable, taken as a whole. In close to twenty years of trading, Nero had only four good years. For him, one was more than enough. All he needed was one good year per century.
  • Humans will believe anything you say provided you do not exhibit the smallest shadow of diffidence;
  • The problem with business people, Nero realized, is that if you act like a loser they will treat you as a loser—you set the yardstick yourself.

The Story of the Drowned Worshippers

  • Silent evidence is what events use to conceal their own randomness, particularly the Black Swan type of randomness.

The Cemetery of Letters

  • wrote quite a bit, but using a perishable brand of papyrus that did not stand the biodegradative assaults of time. Manuscripts had a high rate of extinction before copyists and authors switched to parchment in the second or third century. Those not copied during that period simply disappeared.
  • We may enjoy what we see, but there is no point reading too much into success stories because we do not see the full picture.
  • the large number of people who call themselves writers but are (only “temporarily”) operating the shiny cappuccino machines at Starbucks. The inequity in this field is larger than, say, medicine, since we rarely see medical doctors serving hamburgers. I can thus infer that I can largely gauge the performance of the latter profession’s entire population from what sample is visible to me.

More Hidden Applications

  • Does crime pay? Newspapers report on the criminals who get caught. There is no section in The New York Times recording the stories of those who committed crimes but have not been caught. So it is with cases of tax evasion, government bribes, prostitution rings, poisoning of wealthy spouses (with substances that do not have a name and cannot be detected), and drug trafficking.
  • Once we seep ourselves into the notion of silent evidence, so many things around us that were previously hidden start manifesting themselves.

What You See and What You Don’t See

  • In his essay “What We See and What We Don’t See,” Bastiat offered the following idea: we can see what governments do, and therefore sing their praises—but we do not see the alternative. But there is an alternative; it is less obvious and remains unseen.
  • It is much easier to sell “Look what I did for you” than “Look what I avoided for you.”


  • Our neglect of silent evidence kills people daily. Assume that a drug saves many people from a potentially dangerous ailment, but runs the risk of killing a few, with a net benefit to society. Would a doctor prescribe it? He has no incentive to do so. The lawyers of the person hurt by the side effects will go after the doctor like attack dogs, while the lives saved by the drug might not be accounted for anywhere. A life saved is a statistic; a person hurt is an anecdote. Statistics are invisible; anecdotes are salient. Likewise, the risk of a Black Swan is invisible.*

“I Am a Risk Taker”

  • We have enough evidence to confirm that, indeed, we humans are an extremely lucky species, and that we got the genes of the risk takers. The foolish risk takers, that is. In fact, the Casanovas who survived.

I Am a Black Swan: The Anthropic Bias

  • Once when I returned to Lebanon during the war, at the age of eighteen, I felt episodes of extraordinary fatigue and cold chills in spite of the summer heat. It was typhoid fever. Had it not been for the discovery of antibiotics, only a few decades earlier, I would not be here today. I was also later “cured” of another severe disease that would have left me for dead, thanks to a treatment that depends on another recent medical technology. As a human being alive here in the age of the Internet, capable of writing and reaching an audience, I have also benefited from society’s luck and the remarkable absence of recent large-scale war. In addition, I am the result of the rise of the human race, itself an accidental event.
  • My being here is a consequential low-probability occurrence, and I tend to forget it.
  • just as a gambler who wins at roulette seven times in a row will explain to you that the odds against such a streak are one in several million, so you either have to believe some transcendental intervention is in play or accept his skills and insight in picking the winning numbers. But if you take into account the quantity of gamblers out there, and the number of gambling sessions (several million episodes in total), then it becomes obvious that such strokes of luck are bound to happen.
  • If you look at the population of beginning gamblers taken as a whole, you can be close to certain that one of them (but you do not know in advance which one) will show stellar results just by luck. So, from the reference point of the beginning cohort, this is not a big deal. But from the reference point of the winner (and, who does not, and this is key, take the losers into account), a long string of wins will appear to be too extraordinary an occurrence to be explained by luck.

The Cosmetic Because

  • But silent evidence masks this fact. Whenever our survival is in play, the very notion of because is severely weakened. The condition of survival drowns all possible explanations.
  • The main identifiable reason for our survival of such diseases might simply be inaccessible to us: we are here since, Casanova-style, the “rosy” scenario played out, and if it seems too hard to understand it is because we are too brainwashed by notions of causality and we think that it is smarter to say because than to accept randomness.
  • we are taking a condition, survival, and looking for the explanations, instead of flipping the argument on its head and stating that conditional on such survival, one cannot read that much into the process,
  • But have the integrity to deliver your “because” very sparingly; try to limit it to situations where the “because” is derived from experiments, not backward-looking history.
  • Note here that I am not saying causes do not exist; do not use this argument to avoid trying to learn from history. All I am saying is that it is not so simple; be suspicious of the “because” and handle it with care—particularly in situations where you suspect silent evidence.
  • In addition to the confirmation error and the narrative fallacy, the manifestations of silent evidence further distort the role and importance of Black Swans. In fact, they cause a gross overestimation at times (say, with literary success), and underestimation at others (the stability of history; the stability of our human species).
  • The unconscious part of our inferential mechanism (and there is one) will ignore the cemetery, even if we are intellectually aware of the need to take it into account. Out of sight, out of mind: we harbor a natural, even physical, scorn of the abstract.
  • The best noncharlatanic finance book I know is called What I Learned Losing a Million Dollars, by D. Paul and B. Moynihan. The authors had to self-publish the book.

Non-Brooklyn John

  • this is probably the most vexing problem I know about the connections between two varieties of knowledge, what we dub Platonic and a-Platonic.
  • While the problem is very general, one of its nastiest illusions is what I call the ludic fallacy—the attributes of the uncertainty we face in real life have little connection to the sterilized ones we encounter in exams and games.

Lunch at Lake Como

  • that the military collected more genuine intellects and risk thinkers than most if not all other professions. Defense people wanted to understand the epistemology of risk.
  • The Uncertainty of the Nerd
  • Those who spend too much time with their noses glued to maps will tend to mistake the map for the territory.
  • Furthermore, just as we tend to underestimate the role of luck in life in general, we tend to overestimate it in games of chance.

Gambling with the Wrong Dice

  • A back-of-the-envelope calculation shows that the dollar value of these Black Swans, the off-model hits and potential hits I’ve just outlined, swamp the on-model risks by a factor of close to 1,000 to 1. The casino spent hundreds of millions of dollars on gambling theory and high-tech surveillance while the bulk of their risks came from outside their models. All this, and yet the rest of the world still learns about uncertainty and probability from gambling examples.
  • The Cosmetic Rises to the Surface
  • One of the most insightful thinkers I know, the computer entrepreneur Yossi Vardi, prompted me to summarize “my idea” while standing on one leg.
  • It is why we do not see Black Swans: we worry about those that happened, not those that may happen but did not.
  • 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

  • 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.
  • Above all, learn to avoid “tunneling.”

On the Vagueness of Catherine’s Lover Count

  • Epistēmē is a Greek word that refers to knowledge; giving a Greek name to an abstract concept makes it sound important.
  • Epistemic arrogance bears a double effect: we overestimate what we know, and underestimate uncertainty, by compressing the range of possible uncertain states (i.e., by reducing the space of the unknown).
  • To take an obvious example, think about how many people divorce. Almost all of them are acquainted with the statistic that between one-third and one-half of all marriages fail, something the parties involved did not forecast while tying the knot. Of course, “not us,” because “we get along so well” (as if others tying the knot got along poorly).
  • I remind the reader that I am not testing how much people know, but assessing the difference between what people actually know and how much they think they know.

Information Is Bad for Knowledge

  • Listening to the news on the radio every hour is far worse for you than reading a weekly magazine, because the longer interval allows information to be filtered a bit.

The Expert Problem, or the Tragedy of the Empty Suit

  • No matter what anyone tells you, it is a good idea to question the error rate of an expert’s procedure. Do not question his procedure, only his confidence.
  • I will separate the two cases as follows. The mild case: arrogance in the presence of (some) competence, and the severe case: arrogance mixed with incompetence (the empty suit).

What Moves and What Does Not Move

  • We can already see the difference between “know-how” and “know-what.”
  • if you want to prove that there are no experts, then you will be able to find a profession in which experts are useless.
  • Experts who tend to be experts: livestock judges, astronomers, test pilots, soil judges, chess masters, physicists, mathematicians (when they deal with mathematical problems, not empirical ones), accountants, grain inspectors, photo interpreters, insurance analysts (dealing with bell curve–style statistics).
  • Experts who tend to be … not experts: stockbrokers, clinical psychologists, psychiatrists, college admissions officers, court judges, councilors, personnel selectors, intelligence analysts (the CIA’s record, in spite of its costs, is pitiful),
  • finance professors, political scientists, “risk experts,” Bank for International Settlements staff, august members of the International Association of Financial Engineers, and personal financial advisers.

Events Are Outlandish

  • What matters is not how often you are right, but how large your cumulative errors are.

Herding Like Cattle

  • In a study comparing them with weather forecasters, Tadeusz Tyszka and Piotr Zielonka document that the analysts are worse at predicting, while having a greater faith in their own skills.

I Was “Almost” Right

  • These “experts” were lopsided: on the occasions when they were right, they attributed it to their own depth of understanding and expertise; when wrong, it was either the situation that was to blame, since it was unusual, or, worse, they did not recognize that they were wrong and spun stories around it.
  • We attribute our successes to our skills, and our failures to external events outside our control, namely to randomness.
  • This causes us to think that we are better than others at whatever we do for a living. Ninety-four percent of Swedes believe that their driving skills put them in the top 50 percent of Swedish drivers; 84 percent of Frenchmen feel that their lovemaking abilities put them in the top half of French lovers.
  • The hedgehog and the fox. Tetlock distinguishes between two types of predictors,

Reality? What For?

  • The most interesting test of how academic methods fare in the real world was run by Spyros Makridakis,

“Other Than That,” It Was Okay

  • In fact, the more routine the task, the better you learn to forecast. But there is always something nonroutine in our modern environment.
  • As I said earlier, we are too narrow-minded a species to consider the possibility of events straying from our mental projections, but furthermore, we are too focused on matters internal to the project to take into account external uncertainty,
  • These small Black Swans that threaten to hamper our projects do not seem to be taken into account. They are too abstract—we don’t know how they look and cannot talk about them intelligently.

The Beauty of Technology: Excel Spreadsheets

  • Like most commodity traders, Brian is a man of incisive and sometimes brutally painful realism.
  • Kahneman and Tversky had their subjects spin a wheel of fortune. The subjects first looked at the number on the wheel, which they knew was random, then they were asked to estimate the number of African countries in the United Nations. Those who had a low number on the wheel estimated a low number of African nations; those with a high number produced a higher estimate.
  • Similarly, ask someone to provide you with the last four digits of his social security number. Then ask him to estimate the number of dentists in Manhattan. You will find that by making him aware of the four-digit number, you elicit an estimate that is correlated with it.
  • We use reference points in our heads, say sales projections, and start building beliefs around them because less mental effort is needed to compare an idea to a reference point than to evaluate it in the absolute (System 1 at work!).

The Character of Prediction Errors

  • newborn female is expected to die at around 79, according to insurance tables. When she reaches her 79th birthday, her life expectancy, assuming that she is in typical health, is another 10 years. At the age of 90, she should have another 4.7 years to go. At the age of 100, 2.5 years. At the age of 119, if she miraculously lives that long, she should have about nine months left.
  • Let’s say you are a refugee waiting for the return to your homeland. Each day that passes you are getting farther from, not closer to, the day of triumphal return. The same applies to the completion date of your next opera house. If it was expected to take two years, and three years later you are asking questions, do not expect the project to be completed any time soon. If wars last on average six months, and your conflict has been going on for two years, expect another few years of problems. The Arab-Israeli conflict is sixty years old, and counting—yet it was considered “a simple problem” sixty years ago.
  • Each day will bring you closer to your death but further from the receipt of the letter. This subtle but extremely consequential property of scalable randomness is unusually counterintuitive. We misunderstand the logic of large deviations from the norm.

Don’t Cross a River if It Is (on Average) Four Feet Deep

  • I would go even further and, using the argument about the depth of the river, state that it is the lower bound of estimates (i.e., the worst case) that matters when engaging in a policy—the worst case is far more consequential than the forecast itself. This is particularly true if the bad scenario is not acceptable. Yet the current phraseology makes no allowance for that. None.

Get Another Job

  • I have never had an outlook and have never made professional predictions—but at least I know that I cannot forecast and a small number of people (those I care about) take that as an asset.
  • Anyone who causes harm by forecasting should be treated as either a fool or a liar. Some forecasters cause more damage to society than criminals. Please, don’t drive a school bus blindfolded.


  • At JFK At New York’s JFK airport you can find gigantic newsstands with walls full of magazines. They are usually manned by a very polite family from the Indian subcontinent (just the parents; the children are in medical school). These walls present you with the entire corpus of what an “informed” person needs in order “to know what’s going on.” I wonder how long it would take to read every single one of these magazines, excluding the fishing and motorcycle periodicals (but including the gossip magazines—you might as well have some fun). Half a lifetime? An entire lifetime?

Inadvertent Discoveries

  • The classical model of discovery is as follows: you search for what you know (say, a new way to reach India) and find something you didn’t know was there (America).
  • Sir Francis Bacon commented that the most important advances are the least predictable ones, those “lying out of the path of the imagination.”
  • 1965 two radio astronomists at Bell Labs in New Jersey who were mounting a large antenna were bothered by a background noise, a hiss, like the static that you hear when you have bad reception. The noise could not be eradicated—even after they cleaned the bird excrement out of the dish, since they were convinced that bird poop was behind the noise.

Keep Searching

  • Viagra, which changed the mental outlook and social mores of retired men, was meant to be a hypertension drug.
  • While many worry about unintended consequences, technology adventurers thrive on them.
  • Louis Pasteur’s adage about creating luck by sheer exposure. “Luck favors the prepared,” Pasteur said, and, like all great discoverers, he knew something about accidental discoveries. The best way to get maximal exposure is to keep researching. Collect opportunities—on that, later.

How to Predict Your Predictions!

  • This point can be generalized to all forms of knowledge. There is actually a law in statistics called the law of iterated expectations, which I outline here in its strong form: if I expect to expect something at some date in the future, then I already expect that something at present.
  • In mathematics, once a proof of an arcane theorem has been announced, we frequently witness the proliferation of similar proofs coming out of nowhere, with occasional accusations of leakage and plagiarism. There may be no plagiarism: the information that the solution exists is itself a big piece of the solution.
  • By the same logic, we are not easily able to conceive of future inventions (if we were, they would have already been invented).
  • On the day when we are able to foresee inventions we will be living in a state where everything conceivable has been invented. Our own condition brings to mind the apocryphal story from 1899 when the head of the U.S. patent office resigned because he deemed that there was nothing left to discover—except that on that day the resignation would be justified.*

The Nth Billiard Ball

  • There is so little room in our consciousness; it is winner-take-all up there.
  • Third Republic–Style Decorum
  • Poincaré became a prolific essayist in his thirties. He seemed in a hurry and died prematurely, at fifty-eight; he was in such a rush that he did not bother correcting typos and grammatical errors in his text, even after spotting them, since he found doing so a gross misuse of his time.
  • When mathematicians say “hand-waving,” disparagingly, about someone’s work, it means that the person has: a) insight, b) realism, c) something to say, and it means that d) he is right because that’s what critics say when they can’t find anything more negative.

The Three Body Problem

  • He introduced nonlinearities, small effects that can lead to severe consequences, an idea that later became popular, perhaps a bit too popular, as chaos theory.
  • Explosive forecasting difficulty comes from complicating the mechanics, ever so slightly. Our world, unfortunately, is far more complicated than the three body problem;
  • The inventor of the chessboard requested the following compensation: one grain of rice for the first square, two for the second, four for the third, eight, then sixteen, and so on, doubling every time, sixty-four times. The king granted this request, thinking that the inventor was asking for a pittance—but he soon realized that he was outsmarted. The amount of rice exceeded all possible grain reserves!
  • This multiplicative difficulty leading to the need for greater and greater precision in assumptions can be illustrated with the following simple exercise concerning the prediction of the movements of billiard balls on a table. I use the example as computed by the mathematician Michael Berry.
  • This became known as the butterfly effect, since a butterfly moving its wings in India could cause a hurricane in New York, two years later.

They Still Ignore Hayek

  • As a matter of fact, as I mentioned in Chapter 8, we New Yorkers are all benefiting from the quixotic overconfidence of corporations and restaurant entrepreneurs.
  • Academic Libertarianism
  • To borrow from Warren Buffett, don’t ask the barber if you need a haircut—and don’t ask an academic if what he does is relevant.

Prediction and Free Will

  • Rational actors must be coherent: they cannot prefer apples to oranges, oranges to pears, then pears to apples. If they did, then it would be difficult to generalize their behavior. It would also be difficult to project their behavior in time.
  • One great underestimated thinker is G.L.S. Shackle, now almost completely obscure, who introduced the notion of “unknowledge,” that is, the unread books in Umberto Eco’s library.

The Grueness of Emerald

  • Well, the problems in projecting from the past can be even worse than what we have already learned, because the same past data can confirm a theory and also its exact opposite! If you survive until tomorrow, it could mean that either a) you are more likely to be immortal or b) that you are closer to death.

That Great Anticipation Machine

  • The idea, as promoted by the philosopher Daniel Dennett, is as follows: What is the most potent use of our brain? It is precisely the ability to project conjectures into the future and play the counterfactual game—“If I punch him in the nose, then he will punch me back right away, or, worse, call his lawyer in New York.” One of the advantages of doing so is that we can let our conjectures die in our stead.
  • This ability to mentally play with conjectures, even if it frees us from the laws of evolution, is itself supposed to be the product of evolution—it
  • We have a natural tendency to listen to the expert, even in fields where there may be no experts.

Chapter Twelve-Epistemocracy, a Dream

  • The major modern epistemocrat is Montaigne.

Monsieur de Montaigne, Epistemocrat

  • he was an antidogmatist: he was a skeptic with charm, a fallible, noncommittal, personal, introspective writer, and, primarily, someone who, in the great classical tradition, wanted to be a man.


  • It has been more profitable for us to bind together in the wrong direction than to be alone in the right one. Those who have followed the assertive idiot rather than the introspective wise person have passed us some of their genes. This is apparent from a social pathology: psychopaths rally followers.
  • The Black Swan asymmetry allows you to be confident about what is wrong, not about what you believe is right.

The Past’s Past, and the Past’s Future

  • The notion of future mixed with chance, not a deterministic extension of your perception of the past, is a mental operation that our mind cannot perform.
  • There is a blind spot: when we think of tomorrow we do not frame it in terms of what we thought about yesterday on the day before yesterday. Because of this introspective defect we fail to learn about the difference between our past predictions and the subsequent outcomes. When we think of tomorrow, we just project it as another yesterday.
  • recursive, or second-order, thinking
  • Prediction, Misprediction, and Happiness
  • This predicament is called “anticipated utility” by Danny Kahneman and “affective forecasting” by Dan Gilbert. The point is not so much that we tend to mispredict our future happiness, but rather that we do not learn recursively from past experiences.
  • we humans are supposed to fool ourselves a little bit here and there. According to Trivers’s theory of self-deception, this is supposed to orient us favorably toward the future.

The Melting Ice Cube

  • Consider the following thought experiment borrowed from my friends Aaron Brown and Paul Wilmott:
  • The process from the butterfly to the hurricane is greatly simpler than the reverse process from the hurricane to the potential butterfly.

Once Again, Incomplete Information

  • Randomness, in the end, is just unknowledge. The world is opaque and appearances fool us.

What They Call Knowledge

  • (the ultimate test of whether you like an author is if you’ve reread him)

Being a Fool in the Right Places

  • Do not try to avoid predicting—yes, after this diatribe about prediction I am not urging you to stop being a fool. Just be a fool in the right places.*
  • By all means, demand certainty for the next picnic; but avoid government social-security forecasts for the year 2040.
  • Know how to rank beliefs not according to their plausibility but by the harm they may cause.

Be Prepared

  • Knowing that you cannot predict does not mean that you cannot benefit from unpredictability.
  • Be prepared for all relevant eventualities.

The Idea of Positive Accident

  • The positive accident (like hypertension medicine producing side benefits that led to Viagra) was the empirics’ central method of medical discovery.
  • This same point can be generalized to life: maximize the serendipity around you.
  • America’s specialty is to take these small risks for the rest of the world, which explains this country’s disproportionate share in innovations.

Volatility and Risk of Black Swan

  • People are often ashamed of losses, so they engage in strategies that produce very little volatility but contain the risk of a large loss—like collecting nickels in front of steamrollers.
  • Furthermore, this trade-off between volatility and risk can show up in careers that give the appearance of being stable, like jobs at IBM until the 1990s.

Barbell Strategy

  • Barbell Strategy
  • put a portion, say 85 to 90 percent, in extremely safe instruments, like Treasury bills—as safe a class of instruments as you can manage to find on this planet. The remaining 10 to 15 percent you put in extremely speculative bets, as leveraged as possible (like options), preferably venture capital–style portfolios.*
  • no Black Swan can hurt you at all, beyond your “floor,” the nest egg that you have in maximally safe investments. Or, equivalently, you can have a speculative portfolio and insure it (if possible) against losses of more than, say, 15 percent. You are “clipping” your incomputable risk, the one that is harmful to you. Instead of having medium risk, you have high risk on one side and no risk on the other.

“Nobody Knows Anything”

  • Learn to distinguish between those human undertakings in which the lack of predictability can be (or has been) extremely beneficial and those where the failure to understand the future caused harm. There are both positive and negative Black Swans.
  • Aside from the movies, examples of positive–Black Swan businesses are: some segments of publishing, scientific research, and venture capital. In these businesses, you lose small to make big.
  • It is the venture capitalist who invested in a speculative company and sold his stake to unimaginative investors who is the beneficiary of the Black Swan, not the “me, too” investors.
  • you fare best if you know where your ignorance lies, if you are the only one looking at the unread books, so to speak.
  • Seize any opportunity, or anything that looks like opportunity. They are rare, much rarer than you think. Remember that positive Black Swans have a necessary first step: you need to be exposed to them.
  • Collect as many free nonlottery tickets (those with open-ended payoffs) as you can, and, once they start paying off, do not discard them. Work hard, not in grunt work, but in chasing such opportunities and maximizing exposure to them.
  • Go to parties! If you’re a scientist, you will chance upon a remark that might spark new research.
  • Do not waste your time trying to fight forecasters, stock analysts, economists, and social scientists, except to play pranks on them.

The Great Asymmetry

  • Pascal’s wager, after the philosopher and (thinking) mathematician Blaise Pascal. He presented it something like this: I do not know whether God exists, but I know that I have nothing to gain from being an atheist if he does not exist, whereas I have plenty to lose if he does. Hence, this justifies my belief in God.
  • The probabilities of very rare events are not computable; the effect of an event on us is considerably easier to ascertain (the rarer the event, the fuzzier the odds).
  • I don’t know the odds of an earthquake, but I can imagine how San Francisco might be affected by one. This idea that in order to make a decision you need to focus on the consequences (which you can know) rather than the probability (which you can’t know) is the central idea of uncertainty. Much of my life is based on it.

The World Is Unfair

  • Every morning the world appears to me more random than it did the day before, and humans seem to be even more fooled by it than they were the previous day. It is becoming unbearable. I find writing these lines painful; I find the world revolting.
  • According to Rosen, this inequality comes from a tournament effect: someone who is marginally “better” can easily win the entire pot, leaving the others with nothing.

The Matthew Effect

  • Those who got a good push in the beginning of their scholarly careers will keep getting persistent cumulative advantages throughout life. It is easier for the rich to get richer, for the famous to become more famous.

Lingua Franca

  • The theory of preferential attachment is ubiquitous in its applications: it can explain why city size is from Extremistan, why vocabulary is concentrated among a small number of words, or why bacteria populations can vary hugely in size.

A Brooklyn Frenchman

  • Of the five hundred largest U.S. companies in 1957, only seventy-four were still part of that select group, the Standard and Poor’s 500, forty years later. Only a few had disappeared in mergers; the rest either shrank or went bust.

The Long Tail

  • Cognitive Diversity: How Our Individual Differences Produce Collective Benefits, by Scott Page. Page examines the effects of cognitive diversity on problem solving and shows how variability in views and methods acts like an engine for tinkering.

Reversals Away from Extremistan

  • It has even been shown, by Michael Marmot of the Whitehall Studies, that those at the top of the pecking order live longer, even when adjusting for disease. Marmot’s impressive project shows how social rank alone can affect longevity. It was calculated that actors who win an Oscar tend to live on average about five years longer than their peers who don’t.

The Mandelbrotian

  • The Mandelbrotian By comparison, look at the odds of being rich in Europe. Assume that wealth there is scalable, i.e., Mandelbrotian.
  • What I want to show with these lists is the qualitative difference in the paradigms. As I have said, the second paradigm is scalable; it has no headwind. Note that another term for the scalable is power laws.

What to Remember

  • Remember this: the Gaussian–bell curve variations face a headwind that makes probabilities drop at a faster and faster rate as you move away from the mean, while “scalables,” or Mandelbrotian variations, do not have such a restriction. That’s pretty much most of what you need to know.*


  • Consider this effect. Take a random sample of any two people from the U.S. population who jointly earn $1 million per annum. What is the most likely breakdown of their respective incomes? In Mediocristan, the most likely combination is half a million each. In Extremistan, it would be $50,000 and $950,000.
  • The situation is even more lopsided with book sales. If I told you that two authors sold a total of a million copies of their books, the most likely combination is 993,000 copies sold for one and 7,000 for the other. This is far more likely than that the books each sold 500,000 copies. For any large total, the breakdown will be more and more asymmetric.

Grass and Trees

  • Measures of uncertainty that are based on the bell curve simply disregard the possibility, and the impact, of sharp jumps or discontinuities and are, therefore, inapplicable in Extremistan.
  • We can make good use of the Gaussian approach in variables for which there is a rational reason for the largest not to be too far away from the average.

A (Literary) Thought Experiment on Where the Bell Curve Comes From

  • The quincunx (its name is derived from the Latin for five) in the pinball example shows the fifth round, with thirty-two possibilities, easy to track. Such was the concept behind the quincunx used by Francis Galton. Galton was both insufficiently lazy and a bit too innocent of mathematics;

“The Ubiquity of the Gaussian”

  • It took me close to a decade and a half to find that thinker, the man who made many swans gray: Mandelbrot—the great Benoît Mandelbrot.
  • My main point, which I repeat in some form or another throughout Part Three, is as follows. Everything is made easy, conceptually, when you consider that there are two, and only two, possible paradigms: nonscalable (like the Gaussian) and other (such as Mandebrotian randomness).

The Poet of Randomness

  • He is the only flesh-and-bones teacher I ever had—my teachers are usually books in my library.

The Geometry of Nature

  • Triangles, squares, circles, and the other geometric concepts that made many of us yawn


  • The veins in leaves look like branches; branches look like trees; rocks look like small mountains. There is no qualitative change when an object changes size. If you look at the coast of Britain from an airplane, it resembles what you see when you look at it with a magnifying glass. This character of self-affinity implies that one deceptively short and simple rule of iteration can be used, either by a computer or, more randomly, by Mother Nature, to build shapes of seemingly great complexity.
  • Mandelbrot designed the mathematical object now known as the Mandelbrot set, the most famous object in the history of mathematics.
  • But the general public (mostly computer geeks) got the point. Mandelbrot’s book The Fractal Geometry of Nature made a splash when it came out a quarter century ago.

Pearls to Swine

  • book—you can always produce data “corroborating” that the underlying process is Gaussian by finding periods that do not have rare events, just like you can find an afternoon during which no one killed anyone and use it as “evidence” of honest behavior. I will repeat that, because of the asymmetry with induction, just as it is easier to reject innocence than accept it, it is easier to reject a bell curve than accept it; conversely, it is more difficult to reject a fractal than to accept it.

The Logic of Fractal Randomness (with a Warning)

  • Let us illustrate this. Say that you “think” that only 96 books a year will sell more than 250,000 copies (which is what happened last year), and that you “think” that the exponent is around 1.5. You can extrapolate to estimate that around 34 books will sell more than 500,000 copies—simply 96 times (500,000/250,000)−1.5. We can continue, and note that around 12 books should sell more than a million copies, here 96 times (1,000,000/250,000)−1.5.
  • Source: M.E.J. Newman (2005) and the author’s own calculations.

The Problem of the Upper Bound

  • They argue that wealth, book sales, and market returns all have a certain level when things stop being fractal. “Truncation” is what they propose. I agree that there is a level where fractality might stop, but where? Saying that there is an upper limit but I don’t know how high it is, and saying there is no limit carry the same consequences in practice.

From Representation to Reality

  • I thought that finance and economics were just a place where one learned from various empirical phenomena and filled up one’s bank account with f*** you cash before leaving for bigger and better things.
  • The Gaussian is used as a default distribution for that very reason. As I keep repeating, assuming its application beforehand may work with a small number of fields such as crime statistics, mortality rates, matters from Mediocristan. But not for historical data of unknown attributes and not for matters from Extremistan.

Once Again, a Happy Solution

  • Recall my point in Chapter 13: it makes investment in a book or a drug better than statistics on past data might suggest. But it can make stock market losses worse than what the past shows.

Where Is the Gray Swan?

  • If you know that the stock market can crash, as it did in 1987, then such an event is not a Black Swan. The crash of 1987 is not an outlier if you use a fractal with an exponent of three. If you know that biotech companies can deliver a megablockbuster drug, bigger than all we’ve had so far, then it won’t be a Black Swan, and you will not be surprised, should that drug appear.
  • Mandelbrot deals with gray swans; I deal with the Black Swan. So Mandelbrot domesticated many of my Black Swans, but not all of them, not completely. But he shows us a glimmer of hope with his method, a way to start thinking about the problems of uncertainty. You are indeed much safer if you know where the wild animals are.
  • people think that science is about formulating predictions (even when wrong). To me, science is about how not to be a sucker.

Chapter Seventeen-Locke’s Madmen, or Bell Curves in the Wrong Places

  • We are teaching people methods from Mediocristan and turning them loose in Extremistan. It is like developing a medicine for plants and applying it to humans. It is no wonder that we run the biggest risk of all: we handle matters that belong to Extremistan, but treated as if they belonged to Mediocristan, as an “approximation.”

The Clerks’ Betrayal

  • If the world of finance were Gaussian, an episode such as the crash (more than twenty standard deviations) would take place every several billion lifetimes of the universe (look at the height example in Chapter 15).

Anyone Can Become President

  • After that award I made a prediction: “In a world in which these two get the Nobel, anything can happen. Anyone can become president.”
  • I will repeat the following until I am hoarse: it is contagion that determines the fate of a theory in social science, not its validity.

More Horror

  • So you become numb to insults, particularly if you teach yourself to imagine that the person uttering them is a variant of a noisy ape with little personal control. Just keep your composure, smile, focus on analyzing the speaker not the message, and you’ll win the argument.


  • The entire statistical business confused absence of proof with proof of absence. Furthermore, people did not understand the elementary asymmetry involved: you need one single observation to reject the Gaussian, but millions of observations will not fully confirm the validity of its application. Why? Because the Gaussian bell curve disallows large deviations, but tools of Extremistan, the alternative, do not disallow long quiet stretches.

How to “Prove” Things

  • Now, elegant mathematics has this property: it is perfectly right, not 99 percent so. This property appeals to mechanistic minds who do not want to deal with ambiguities.
  • Model: Sextus Empiricus and the school of evidence-based, minimum-theory empirical medicine Model: Laplacian mechanics, the world and the economy like a clock Develops intuitions from practice, goes from observations to books
  • The option payoff is so powerful that you do not have to be right on the odds: you can be wrong on the probability, but get a monstrously large payoff. I’ve called this the “double bubble”: the mispricing of the probability and that of the payoff.

Find the Phony

  • But political, social, and weather events do not have this handy property, and we patently cannot predict them, so when you hear “experts” presenting the problems of uncertainty in terms of subatomic particles, odds are that the expert is a phony. As a matter of fact, this may be the best way to spot a phony.
  • People can’t predict how long they will be happy with recently acquired objects, how long their marriages will last, how their new jobs will turn out, yet it’s subatomic particles that they cite as “limits of prediction.” They’re ignoring a mammoth standing in front of them in favor of matter even a microscope would not allow them to see.

Where Is Popper When You Need Him?

  • A scholar should not be a library’s tool for making another library, as in the joke by Daniel Dennett.
  • The following remark is one reason I have inordinate respect for Karl Popper; it is one of the few quotations in this book that I am not attacking.

The Bishop and the Analyst

  • I am most often irritated by those who attack the bishop but somehow fall for the securities analyst—those who exercise their skepticism against religion but not against economists, social scientists, and phony statisticians.

Chapter Nineteen-Half and Half, Or How to Get Even with the Black Swan

  • This may not seem exceptional, except that my conservatism applies to what others call risk taking, and my aggressiveness to areas where others recommend caution.
  • I worry less about small failures, more about large, potentially terminal ones. I worry far more about the “promising” stock market, particularly the “safe” blue chip stocks, than I do about speculative ventures—the former present invisible risks, the latter offer no surprises since you know how volatile they are and can limit your downside by investing smaller amounts.
  • I worry less about advertised and sensational risks, more about the more vicious hidden ones. I worry less about terrorism than about diabetes, less about matters people usually worry about because they are obvious worries, and more about matters that lie outside our consciousness and common discourse
  • In the end this is a trivial decision making rule: I am very aggressive when I can gain exposure to positive Black Swans—when a failure would be of small moment—and very conservative when I am under threat from a negative Black Swan. I am very aggressive when an error in a model can benefit me, and paranoid when the error can hurt. This may not be too interesting except that it is exactly what other people do not do.
  • Half the time I am shallow, the other half I want to avoid shallowness. I am shallow when it comes to aesthetics; I avoid shallowness in the context of risks and returns.
  • Our tendency is to be very rational, except when it comes to the Black Swan.
  • Half the time I hate Nietzsche, the other half I like his prose.

When Missing a Train Is Painless

  • Missing a train is only painful if you run after it! Likewise, not matching the idea of success others expect from you is only painful if that’s what you are seeking.
  • You stand above the rat race and the pecking order, not outside of it, if you do so by choice. Quitting a high-paying position, if it is your decision, will seem a better payoff than the utility of the money involved (this may seem crazy, but I’ve tried it and it works). This is the first step toward the stoic’s throwing a four-letter word at fate. You have far more control over your life if you decide on your criterion by yourself.
  • Be aggressive; be the one to resign, if you have the guts. It is more difficult to be a loser in a game you set up yourself.
  • In Black Swan terms, this means that you are exposed to the improbable only if you let it control you. You always control what you do; so make this your end.

I—Learning from Mother Nature, the Oldest and the Wisest

  • I owe the idea of this book-length essay to Danny Kahneman, toward whom I (and my ideas) have more debt than toward anyone else on this planet.

On Slow but Long Walks

  • My problem is that I found only two persons who can have a conversation during a long walk (and walk slowly): Spyros Makridakis and Yechezkel Zilber.
  • I need to keep going to Athens (where Spyros lives) in order to indulge in my favorite activity, being a flâneur.

Robustness and Fragility

  • They proposed historia: maximal recording of facts with minimal interpretation and theorizing, describing of facts without the why, and resisting universals.
  • Mother Nature does not develop Alzheimer’s—actually there is evidence that even humans would not easily lose brain function with age if they followed a regimen of stochastic exercise and stochastic fasting, took long walks, avoided sugar, bread, white rice, and stock market investments, and refrained from taking economics classes or reading such things as The New York Times.

Redundancy as Insurance

  • Look at the human body. We have two eyes, two lungs, two kidneys, even two brains (with the possible exception of corporate executives)—and
  • Grandmothers who survived the Great Depression would have advised the exact opposite of debt: redundancy; they would urge us to have several years of income in cash before taking any personal risk—exactly my barbell idea of Chapter 11, in which one keeps high cash reserves while taking more aggressive risks but with a small portion of the portfolio. Had banks done that, there would have been no bank crises in history.

Big is Ugly—and Fragile

  • Wall Street analysts (MBA types) will pressure companies to sell the extra kidney and ditch insurance to raise their “earnings per share” and “improve their bottom line”—hence eventually contributing to their bankruptcy.

Climate Change and “Too Big” Polluters

  • the so-called butterfly effects we saw in Chapter 11, actually discovered by Lorenz using weather-forecasting models. Small changes in input, coming from measurement error, can lead to massively divergent projections—and that generously assumes that we have the right equations.
  • To those who say “We have no proof that we are harming nature,” a sound response is “We have no proof that we are not harming nature, either;”
  • One practical solution I have come up with, based on the nonlinearities in the damage (under the assumption that harm increases disproportionately with the quantities released), and using the same mathematical reasoning that led to my opposing the “too big” concept, is to spread the damage across pollutants—should we need to pollute, of course.

Species Density

  • One of the privileges I got as a result of the book was meeting Nathan Myhrvold, the type of person I wish were cloned so I could have one copy here in New York, one in Europe, and one in Lebanon.
  • We have evidence that small islands have many more species per square meter than larger ones, and, of course, than continents.

The Other Types of Redundancy

  • So when you have a lot of functional redundancies, randomness helps on balance, but under one condition—that you can benefit from the randomness more than you can be hurt by it (an argument I call more technically convexity to uncertainty).
  • Distinctions Without a Difference, Differences Without a Distinction
  • if we used measuring for the table, and forecasting for risk, we would have fewer turkeys blowing up from Black Swans.

A Society Robust to Error

  • I will only very briefly discuss the crisis of 2008 (which took place after the publication of the book, and which was a lot of things, but not a Black Swan, only the result of fragility in systems built upon ignorance—and denial—of the notion of Black Swan events. You know with near certainty that a plane flown by an incompetent pilot will eventually crash).
  • The very same journalists, economists, and political experts who did not see the crisis coming provided abundant ex-post analyses about its inevitability.

Another Few Barbells

  • living organisms (whether the human body or the economy) need variability and randomness. What’s more, they need the Extremistan type of variability, certain extreme stressors. Otherwise they become fragile. That, I completely missed.*
  • This is another application of the barbell strategy: plenty of idleness, some high intensity. The data shows that long, very long walks, combined with high-intensity exercise outperform just running.
  • So the main idea is to trade duration for intensity—for a hedonic gain.
  • If one in a million authors makes half the sales, you need a lot of authors to sell no books. This is the turkey trap I will discuss later: philistines (and Federal Reserve chairpersons) mistake periods of low volatility (caused by stabilization policies) for periods of low risk, not for switches into Extremistan.

III—Margaritas Ante Porcos

  • The focus is in not being the turkey in places where it matters, though there is nothing wrong in being a fool where that has no effect.

Main Errors in Understanding the Message

  • The idea, well accepted by grandmothers, that one should pick a destination for which one has a good map, not travel and then find “the best” map, is foreign to PhDs in social science.

A Desert Crossing

  • (helping people get closer to the barbell of Chapter 11).
  • I needed connection to the real world, something real and applied, instead of focusing on winning arguments and trying to convince people of my point (people are almost always only convinced of what they already know).
  • When you walk the walk, whether successful or not, you feel more indifferent and robust to people’s opinion, freer, more real.
  • Dan Goldstein and I ran experiments on professionals using probabilistic tools, and were shocked to see that up to 97 percent of them failed elementary questions.* Emre Soyer and Robin Hogarth subsequently took the point and tested it in the use of an abhorrent field called econometrics (a field that, if any scientific scrutiny was applied to it, would not exist)—again, most researchers don’t understand the tools they are using.

Asperger Probability

  • around that age, children start realizing that another person can be deprived of some of the information they have, and can hold beliefs that are different from their own.

Future Blindness Redux

  • went to Congress to explain that the banking crisis, which he and his successor Bernanke helped cause, could not have been foreseen because it “had never happened before.” Not a single member of congress was intelligent enough to shout, “Alan Greenspan, you have never died before, not in eighty years, not even once; does that make you immortal?”

Probability has to be Subjective

  • I will say for now that many of these mathematical and philosophical distinctions are entirely overblown, Soviet-Harvard-style, top-down, as people start with a model and then impose it on reality and start categorizing, rather than start with reality and look at what fits it, in a bottom-up way.

V—(Perhaps) The Most Useful Problem in the History of Modern Philosophy

  • The Black Swan is the very first attempt (that I know of) in the history of thought to provide a map of where we get hurt by what we don’t know, to set systematic limits to the fragility of knowledge—and to provide exact locations where these maps no longer work.

Living in Two Dimensions

  • Clearly, you cannot doubt everything and function; you cannot believe everything and survive.

It’s the Consequences …

  • Let me provide once again an illustration of Extremistan. Less than 0.25 percent of all the companies listed in the world represent around half the market capitalization, a less than minuscule percentage of novels on the planet accounts for approximately half of fiction sales, less than 0.1 percent of drugs generate a little more than half the pharmaceutical industry’s sales—and less than 0.1 percent of risky events will cause at least half the damages and losses.

From Reality to Representation

  • Consider that we are suckers and will gravitate toward those variables that are unstable but that appear stable.
  • Psychology of Perception of Deviations
  • Psychology of Perception of Deviations Fragility of Intuitions About the Typicality of the Move. Dan Goldstein and I ran a series of experiments about the intuitions of agents concerning such conditional expectations.
  • VI—The Fourth Quadrant, the Solution to that Most Useful of Problems
  • It is much more sound to take risks you can measure than to measure the risks you are taking.


  • A biological experiment in the laboratory and a bet with a friend about the outcome of a soccer game belong to this category. Clearly, binary outcomes are not very prevalent in life; they mostly exist in laboratory experiments and in research papers.

The Fourth Quadrant, a Map

  • TABLE 1: TABLEAU OF DECISIONS BY PAYOFF M0 “True/False” M1 Expectations Medical results for one person (health, not epidemics) Epidemics (number of persons infected) Psychology experiments (yes/no answers) Intellectual and artistic success (defined as book sales, citations, etc.) Life/Death (for a single person, not for n persons) Climate effects (any quantitative metric) Symmetric bets in roulette War damage (number of casualties) Prediction markets Security, terrorism, natural catastrophes (number of victims) General risk management
  • Finance: performance of a nonleveraged investment (say, a retirement account) Insurance (measures of expected losses) Economics (policy) Casinos
  • (exploiting the positive one is too obvious, and has been discussed in the story of Apelles the painter, in Chapter 13).
  • The recommendation is to move from the Fourth Quadrant into the third one. It is not possible to change the distribution; it is possible to change the exposure, as will be discussed in the next section.

Negative Advice

  • However, as I said, recommendations of the style “Do not do” are more robust empirically. How do you live long? By avoiding death. Yet people do not realize that success consists mainly in avoiding losses, not in trying to derive profits. Positive advice is usually the province of the charlatan. Bookstores are full of books on how someone became successful; there are almost no books with the title What I Learned Going Bust, or Ten Mistakes to Avoid in Life.

Phronetic Rules: What is Wise to do (or not do) in Real Life to Mitigate the Fourth Quadrant if you can’t Barbell?

  • The most obvious way to exit the Fourth Quadrant is by “truncating,” cutting certain exposures by purchasing insurance, when available, putting oneself in the “barbell” situation described in Chapter 13.
  • Redundancy (in terms of having savings and cash under the mattress) is the opposite of debt. Psychologists tell us that getting rich does not bring happiness—if you spend your savings. But if you hide it under the mattress, you are less vulnerable to a Black Swan.
  • Beware moral hazard with bonus payments. It’s optimal to make a series of bonuses by betting on hidden risks in the Fourth Quadrant, then blow up and write a thank-you letter.
  • A biotech company (usually) faces positive uncertainty, while a bank faces almost exclusively negative shocks.

VIII—The Ten Principles for a Black-Swan-Robust Society

  • No socialization of losses and privatization of gains. Whatever may need to be bailed out should be nationalized; whatever does not need a bailout should be free, small, and risk-bearing. We got ourselves into the worst of capitalism and socialism. In France, in the 1980s, the socialists took over the banks. In the United States in the 2000s, the banks took over the government. This is surreal.
  • It is also irresponsible to listen to advice from the “risk experts” and business school academia still promoting their measurements, which failed us (such as Value-at-Risk). Find the smart people whose hands are clean.
  • Don’t let someone making an “incentive” bonus manage a nuclear plant—or your financial risks. Odds are he would cut every corner on safety to show “profits” from these savings while claiming to be “conservative.”
  • Do not give an addict more drugs if he has withdrawal pains. Using leverage to cure the problems of too much leverage is not homeopathy, it’s denial.
  • Citizens should not depend on financial assets as a repository of value and should not rely on fallible “expert” advice for their retirement.
  • Investments should be for entertainment. Citizens should experience anxiety from their own businesses (which they control), not from their investments (which they do not control).
  • Then we will see an economic life closer to our biological environment: smaller firms, a richer ecology, no speculative leverage—a world in which entrepreneurs, not bankers, take the risks, and in which companies are born and die every day without making the news.

IX—Amor Fati: How to Become Indestructible

  • Recall the “prospect theory” of Danny Kahneman and his colleagues: if I gave you a nice house and a Lamborghini, put a million dollars in your bank account, and provided you with a social network, then, a few months later, took everything away, you would be much worse off than if nothing had happened in the first place.

Nihil Perditi

  • Seneca ended his essays (written in the epistolary form) with vale, often mistranslated as “farewell.” It has the same root as “value” and “valor” and means both “be strong (i.e., robust)” and “be worthy.” Vale.