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

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 .

Linked to this need for positive advice is the preference we have to do something rather than nothing , even in cases when doing something is harmful.

I was recently on TV and some empty-suit type kept bugging me for precise advice on how to pull out of the crisis. It was impossible to communicate my “what not to do” advice, or to point out that my field is error avoidance not emergency room surgery, and that it could be a stand-alone discipline, just as worthy. Indeed, I spent twelve years trying to explain that in many instances it was better—and wiser—to have no models than to have the mathematical acrobatics we had.

Unfortunately such lack of rigor pervades the place where we expect it the least: institutional science. Science, particularly its academic version, has never liked negative results, let alone the statement and advertising of its own limits. The reward system is not set up for it. You get respect for doing funambulism or spectator sports—following the right steps to become “the Einstein of Economics” or “the next Darwin” rather than give society something real by debunking myths or by cataloguing where our knowledge stops.

Let me return to Gödel’s limit. In some instances we accept the limits of knowledge, trumpeting, say, Gödel’s “breakthrough” mathematical limit because it shows elegance in formulation and mathematical prowess—though the importance of this limit is dwarfed by our practical limits in forecasting climate changes, crises, social turmoil, or the fate of the endowment funds that will finance research into such future “elegant” limits. This is why I claim that my Fourth Quadrant solution is the most applied of such limits.

Iatrogenics and the Nihilism Label

Let’s consider medicine (that sister of philosophy), which only started saving lives less than a century ago (I am generous), and to a lesser extent than initially advertised in the popular literature, as the drops in mortality seem to arise much more from awareness of sanitation and the (random) discovery of antibiotics rather than from therapeutic contributions. Doctors, driven by the beastly illusion of control, spent a long time killing patients, not considering that “doing nothing” could be a valid option (it was “nihilistic”)—and research compiled by Spyros Makridakis shows that they still do to some extent, particularly in the overdiagnoses of some diseases.

The nihilism label has always been used to harm. Practitioners who were conservative and considered the possibility of letting nature do its job, or who stated the limits of our medical understanding, were until the 1960s accused of “therapeutic nihilism.” It was deemed “unscientific” to avoid embarking on a course of action based on an incomplete understanding of the human body—to say, “This is the limit; this is where my body of knowledge stops.” It has been used against this author by intellectual fraudsters trying to sell products.

The very term iatrogenics , i.e., the study of the harm caused by the healer, is not widespread—I have never seen it used outside medicine. In spite of my lifelong obsession with what is called type 1 error, or the false positive, I was only introduced to the concept of iatrogenic harm very recently, thanks to a conversation with the essayist Bryan Appleyard. How can such a major idea remain hidden from our consciousness? Even in medicine, that is, modern medicine, the ancient concept “Do no harm” sneaked in very late. The philosopher of science Georges Canguilhem wondered why it was not until the 1950s that the idea came to us. This, to me, is a mystery: how professionals can cause harm for such a long time in the name of knowledge and get away with it.

Sadly, further investigation shows that these iatrogenics were mere rediscoveries after science grew too arrogant by the Enlightenment. Alas, once again, the elders knew better—Greeks, Romans, Byzantines, and Arabs had a built-in respect for the limits of knowledge. There is a treatise by the medieval Arab philosopher and doctor Al-Ruhawi which betrays the familiarity of these Mediterranean cultures with iatrogenics. I have also in the past speculated that religion saved lives by taking the patient away from the doctor. You could satisfy your illusion of control by going to the Temple of Apollo rather than seeing the doctor. What is interesting is that the ancient Mediterraneans may have understood the trade-off very well and may have accepted religion partly as a tool to tame the illusion of control.

You cannot do anything with knowledge unless you know where it stops, and the costs of using it. Post-Enlightenment science, and its daughter superstar science, were lucky to have done well in (linear) physics, chemistry, and engineering. But at some point we need to give up on elegance to focus on something that was given short shrift for a very long time: the maps showing what current knowledge and current methods do not do for us; and a rigorous study of generalized scientific iatrogenics, what harm can be caused by science (or, better, an exposition of what harm has been done by science). I find it the most respectable of pursuits.

Iatrogenics of Regulators . Alas, the call for more (unconditional) regulation of economic activity appears to be a normal response. My worst nightmares have been the results of regulators. It was they who promoted the reliance on ratings by credit agencies and the “risk measurement” that fragilized the system as bankers used them to build positions that turned sour. Yet every time there is a problem, we do the Soviet-Harvard thing of more regulation, which makes investment bankers, lawyers, and former-regulators-turned-Wall-Street-advisers rich. They also serve the interest of other groups.

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. But if you are not able to barbell, and cannot avoid the exposure, as with, say, climate notions, exposure to epidemics, and similar items from the previous table, then we can subscribe to the following rules of “wisdom” to increase robustness.

1. Have respect for time and nondemonstrative knowledge .

Recall my respect for Mother Earth—simply because of its age. It takes much, much longer for a series of data in the Fourth Quadrant to reveal its properties. I had been railing that compensation for bank executives, who are squarely in the Fourth Quadrant, is done on a short-term window, say yearly, for things that blow up every five, ten, or fifteen years, causing a mismatch between observation window and window of a sufficient length to reveal the properties. Bankers get rich in spite of long-term negative returns.

Things that have worked for a long time are preferable—they are more likely to have reached their ergodic states. At the worst, we don’t know how long they’ll last. *

Remember that the burden of proof lies on someone disturbing a complex system, not on the person protecting the status quo.

2. Avoid optimization; learn to love redundancy .

I’ve discussed redundancy and optimization in Section I. A few more things to say.

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.