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

* We will see in Chapter 10 some clever quantitative tests done to prove such herding; they show that, in many subject matters, the distance between opinions is remarkably narrower than the distance between the average of opinions and truth.

* I then realized that the great strength of the free-market system is the fact that company executives don’t need to know what’s going on.

* I specialized in complicated financial instruments called “derivatives,” those that required advanced mathematics—but for which the errors for using the wrong mathematics were the greatest. The subject was new and attractive enough for me to get a doctorate in it.

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.

Chapter Two

YEVGENIA’S BLACK SWAN

Pink glasses and success—How Yevgenia stops marrying philosophers—I told you so

Five years ago, Yevgenia Nikolayevna Krasnova was an obscure and unpublished novelist, with an unusual background. She was a neuroscientist with an interest in philosophy (her first three husbands had been philosophers), and she got it into her stubborn Franco-Russian head to express her research and ideas in literary form. She dressed up her theories as stories, and mixed them with all manner of autobiographical commentary. She avoided the journalistic prevarications of contemporary narrative nonfiction (“On a clear April morning, John Smith left his house. …”). Foreign dialogue was always written in the original language, with translations appended like movie subtitles. She refused to dub into bad English conversations that took place in bad Italian. *

No publisher would have given her the time of day, except that there was, at the time, some interest in those rare scientists who could manage to express themselves in semi-understandable sentences. A few publishers agreed to speak with her; they hoped that she would grow up and write a “popular science book on consciousness.” She received enough attention to get the courtesy of rejection letters and occasional insulting comments instead of the far more insulting and demeaning silence.

Publishers were confused by her manuscript. She could not even answer their first question: “Is this fiction or nonfiction?” Nor could she respond to the “Who is this book written for?” on the publishers’ book proposal forms. She was told, “You need to understand who your audience is” and “amateurs write for themselves, professionals write for others.” She was also told to conform to a precise genre because “bookstores do not like to be confused and need to know where to place a book on the shelves.” One editor protectively added, “This, my dear friend, will only sell ten copies, including those bought by your ex-husbands and family members.”

She had attended a famous writing workshop five years earlier and came out nauseated. “Writing well” seemed to mean obeying arbitrary rules that had grown into gospel, with the confirmatory reinforcement of what we call “experience.” The writers she met were learning to retrofit what was deemed successful: they all tried to imitate stories that had appeared in past issues of The New Yorker —not realizing that most of what is new, by definition, cannot be modeled on past issues of The New Yorker . Even the idea of a “short story” was a me-too concept to Yevgenia. The workshop instructor, gentle but firm in his delivery, told her that her case was utterly hopeless.

Yegvenia ended up posting the entire manuscript of her main book, A Story of Recursion , on the Web. There it found a small audience, which included the shrewd owner of a small unknown publishing house, who wore pink-rimmed glasses and spoke primitive Russian (convinced that he was fluent). He offered to publish her, and agreed to her condition to keep her text completely unedited. He offered her a fraction of the standard royalty rate in return for her editorial stricture—he had so little to lose. She accepted since she had no choice.

It took five years for Yevgenia to graduate from the “egomaniac without anything to justify it, stubborn and difficult to deal with” category to “persevering, resolute, painstaking, and fiercely independent.” For her book slowly caught fire, becoming one of the great and strange successes in literary history, selling millions of copies and drawing so-called critical acclaim. The start-up house has since become a big corporation, with a (polite) receptionist to greet visitors as they enter the main office. Her book has been translated into forty languages (even French). You see her picture everywhere. She is said to be a pioneer of something called the Consilient School. Publishers now have a theory that “truck drivers who read books do not read books written for truck drivers” and hold that “readers despise writers who pander to them.” A scientific paper, it is now understood, can hide trivialities or irrelevance with equations and jargon; consilient prose, by exposing an idea in raw form, allows it to be judged by the public.

Today, Yevgenia has stopped marrying philosophers (they argue too much), and she hides from the press. In classrooms, literary scholars discuss the many clues indicating the inevitability of the new style. The distinction between fiction and nonfiction is considered too archaic to withstand the challenges of modern society. It was so evident that we needed to remedy the fragmentation between art and science. After the fact, her talent was so obvious.

Many of the editors she later met blamed her for not coming to them, convinced that they would have immediately seen the merit in her work. In a few years, a literary scholar will write the essay “From Kundera to Krasnova,” showing how the seeds of her work can be found in Kundera—a precursor who mixed essay and metacommentary (Yevgenia never read Kundera, but did see the movie version of one of his books—there was no commentary in the movie). A prominent scholar will show how the influence of Gregory Bateson, who injected autobiographical scenes into his scholarly research papers, is visible on every page (Yevgenia has never heard of Bateson).

Yevgenia’s book is a Black Swan.

* Her third husband was an Italian philosopher.

Chapter Three

THE SPECULATOR AND THE PROSTITUTE

On the critical difference between speculators and prostitutes—Fairness, unfairness, and Black Swans—Theory of knowledge and professional incomes—How Extremistan is not the best place to visit, except, perhaps, if you are a winner

Yevgenia’s rise from the second basement to superstar is possible in only one environment, which I call Extremistan. *I will soon introduce the central distinction between the Black Swan–generating province of Extremistan and the tame, quiet, and uneventful province of Mediocristan.