Нассим Талеб - The Black Swan. The Impact of the Highly Improbable

So a philosophical essay is a beginning, not an end. To me the very same meditation continues from book to book, compared to the work of a nonfiction writer, who will, say, move to another distinct and journalistically confined topic. I want my contribution to be a new way of viewing knowledge, the very beginning of a long investigation, the start of something real. Indeed, I am glad at the time of writing, a few years into the life of the book, to see the idea spread among thoughtful readers, inspiring like-minded scholars to go beyond it and seeding research in epistemology, engineering, education, defense, operations research, statistics, political theory, sociology, climate studies, medicine, law, aesthetics, and insurance (though not so much in the area in which The Black Swan found Black Swan–style near instant vindication, economics).

I was lucky that it only took a couple of years (and a severe financial crisis) for the Republic of Letters to realize that The Black Swan was a philosophical tale.

How to Expunge One’s Crimes

My ideas went through two distinctive stages after the release of the book. In the first, as the book hit the bestseller list in almost every single country where it was published, many social scientists and finance practitioners fell into the trap of refuting me with the sole argument that I was selling too many books and that my book was accessible to readers; hence it could not reflect original and systematic thought, it was just a “popularization,” not worth reading let alone commenting upon.

The first change of regime came with the release of my more difficult mathematical, empirical, and scholarly work in a dozen articles in a variety of journals in an attempt to expiate my crime of having sold too many books. *Then, silence.

Still no refutation at the time of this writing; indeed, my paper on the Fourth Quadrant in the International Journal of Forecasting (which I simplify in this essay) produced incontrovertible evidence that most (perhaps all) “rigorous” papers in economics using fancy statistics are just hot air, partaking of a collective scam (with diffusion of responsibility), unusable for any form of risk management. Clearly, so far, in spite of a few smear campaigns, or, rather, attempts at a smear campaign (typically conducted by former Wall Street persons or Diet Coke drinkers), nobody has managed to present a formal (or even informal) refutation of the idea—neither of the logical-mathematical arguments nor of the empirical arguments.

But meanwhile I figured out something valuable in the packaging of the Black Swan idea. Just as in Fooled by Randomness I had argued (initially from personal experience) that a “70 percent chance of survival” is vastly different from a “30 percent chance of death,” I found out that telling researchers “This is where your methods work very well” is vastly better than telling them “This is what you guys don’t know.” So when I presented to what was until then the most hostile crowd in the world, members of the American Statistical Association, a map of the four quadrants, and told them: your knowledge works beautifully in these three quadrants, but beware of the fourth one, as this is where the Black Swans breed, I received instant approval, support, offers of permanent friendship, refreshments (Diet Coke), invitations to come present at their sessions, even hugs. Indeed, that is how a series of research papers started using my work on where the Fourth Quadrant is located, etc. They tried to convince me that statisticians were not responsible for these aberrations, which come from people in the social sciences who apply statistical methods without understanding them (something I verified later, in formal experiments, to my great horror, as we will see further down).

The second change of regime came with the crisis of 2008. I kept getting invited to debates, but I stopped obliging, as it became hard for me to hear complicated arguments and restrain a smile, sometimes a smirk. Why a smile? Well, the vindication. Not the intellectual vindication of winning an argument, no: academia, I discovered, does not change its mind voluntarily, except perhaps in some real sciences such as physics. It was a different feeling: it is hard to focus on a conversation, especially when it is mathematical, when you have just personally earned several hundreds of times the annual salary of the researcher trying to tell you that you are “wrong,” by betting against his representation of the world.

A Desert Crossing

For I had undergone a difficult psychological moment, after the publication of The Black Swan , what the French call traversée du désert , when you go through the demoralizing desiccation and disorientation of crossing a desert in search of an unknown destination, or a more or less promised land. I had a rough time, shouting “Fire! Fire! Fire!” about the hidden risks in the system, and hearing people ignore the content and instead just criticize the presentation, as if they were saying “your diction in shouting ‘Fire!’ is bad.” For example, the curator of a conference known as TED (a monstrosity that turns scientists and thinkers into low-level entertainers, like circus performers) complained that my presentation style did not conform to his taste in slickness and kept my lecture on Black Swans and fragility off the Web. Of course, he subsequently tried to claim credit for my warnings voiced before the crisis of 2008. *

Most of the arguments offered were that “times are different,” invoking “the great moderation” by one Ben Bernanke (chairman of the Federal Reserve at the time of writing) who fell for the turkey-before-Thanksgiving trap of not understanding that moving into Extremistan comes through a drop in daily volatility.

Also when I was railing against models, social scientists kept repeating that they knew it and that there is a saying, “all models are wrong, but some are useful”—not understanding that the real problem is that “some are harmful.” Very harmful. As Fat Tony would say, “Tawk is cheap.” So Mark Spitznagel and I restarted the business of “robustifying” clients against the Black Swan (helping people get closer to the barbell of Chapter 11). We were convinced that the banking system was going to collapse under the weight of hidden risks—that such an event would be a white swan. It was moving from gray to white in color as the system was accumulating risks. The longer we had to wait for it, the more severe it would be. The collapse took place about a year and a half after the publication of the book. We had been expecting it and betting against the banking system for a long time (and protecting clients by making them Black Swan robust), but the reception of the Black Swan—and the absence of refutation that was not ad hominem—made us vastly more worried about the need for protection than ever before.

Like Antaeus, who lost strength when separated from contact with the earth, 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). Sticking my neck out in the real world, lining up my life with my ideas by getting involved in trading, had a therapeutic effect, even apart from the vindication; just having a trade on the books gave me strength to not care. A few months before the onset of the crisis of 2008, I was attacked at a party by a Harvard psychologist who, in spite of his innocence of probability theory, seemed to have a vendetta against me and my book. (The most vicious and bitter detractors tend to be those with a competing product on the bookstore shelves.) Having a trade on allowed me to laugh at him—or, what is even worse, made me feel some complicity with him, thanks to his anger. I wonder what would have happened to the psychological state of another author, identical to me in all respects except that he had no involvement with trading and risk taking. When you walk the walk, whether successful or not, you feel more indifferent and robust to people’s opinion, freer, more real.