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

It was the exposure to a high level of information that poisoned Nero’s life. He could sustain the pain if he saw only weekly performance numbers, instead of updates every minute. He did better emotionally with his own portfolio than with those of clients, since he was not obligated to monitor it continuously.

If his neurobiological system was a victim of the confirmation bias, reacting to the short term and the visible, he could trick his brain to escape its vicious effect by focusing only on the longer haul. He refused to look at any printout of his track record that was shorter than ten years. 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.

Investors were no problem for him—they needed his trading as insurance and paid him well. He just had to exhibit a mild degree of contempt toward those he wanted to shed, which did not take much effort on his part. This effort was not contrived: Nero did not think much of them and let his body language express it freely, all the while maintaining an unfashionably high level of courtesy. He made sure, after a long string of losses, that they did not think he was apologetic—indeed, paradoxically, they became more supportive that way. Humans will believe anything you say provided you do not exhibit the smallest shadow of diffidence; like animals, they can detect the smallest crack in your confidence before you express it. The trick is to be as smooth as possible in personal manners. It is much easier to signal self-confidence if you are exceedingly polite and friendly; you can control people without having to offend their sensitivity. 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. There is no absolute measure of good or bad. It is not what you are telling people, it is how you are saying it.

But you need to remain understated and maintain an Olympian calm in front of others.

When he worked as a trader for an investment bank, Nero had to face the typical employee-evaluation form. The form was supposed to keep track of “performance,” supposedly as a check against employees slacking off. Nero found the evaluation absurd because it did not so much judge the quality of a trader’s performance as encourage him to game the system by working for short-term profits at the expense of possible blowups—like banks that give foolish loans that have a small probability of blowing up, because the loan officer is shooting for his next quarterly evaluation. So one day early in his career, Nero sat down and listened very calmly to the evaluation of his “supervisor.” When Nero was handed the evaluation form he tore it into small pieces in front of him. He did this very slowly, accentuating the contrast between the nature of the act and the tranquillity with which he tore the paper. The boss watched him blank with fear, eyes popping out of his head. Nero focused on his undramatic, slow-motion act, elated by both the feeling of standing up for his beliefs and the aesthetics of its execution. The combination of elegance and dignity was exhilarating. He knew that he would either be fired or left alone. He was left alone.

Chapter Eight

GIACOMO CASANOVA’S UNFAILING LUCK: THE PROBLEM OF SILENT EVIDENCE

The Diagoras problem—How Black Swans make their way out of history books—Methods to help you avoid drowning—The drowned do not usually vote—We should all be stockbrokers—Do silent witnesses count?—Casanova’s étoile—New York is “so invincible”

Another fallacy in the way we understand events is that of silent evidence. History hides both Black Swans and its Black Swan–generating ability from us.

THE STORY OF THE DROWNED WORSHIPPERS

More than two thousand years ago, the Roman orator, belletrist, thinker, Stoic, manipulator-politician, and (usually) virtuous gentleman, Marcus Tullius Cicero, presented the following story. One Diagoras, a nonbeliever in the gods, was shown painted tablets bearing the portraits of some worshippers who prayed, then survived a subsequent shipwreck. The implication was that praying protects you from drowning. Diagoras asked, “Where were the pictures of those who prayed, then drowned?”

The drowned worshippers, being dead, would have a lot of trouble advertising their experiences from the bottom of the sea. This can fool the casual observer into believing in miracles.

We call this the problem of silent evidence. The idea is simple, yet potent and universal. While most thinkers try to put to shame those who came before them, Cicero puts to shame almost all empirical thinkers who came after him, until very recently.

Later on, both my hero of heroes, the essayist Michel de Montaigne and the empirical Francis Bacon, mentioned the point in their works, applying it to the formation of false beliefs. “And such is the way of all superstition, whether in astrology, dreams, omens, divine judgments, or the like,” wrote Bacon in his Novum Organum . The problem, of course, is that unless they are drilled into us systematically, or integrated into our way of thinking, these great observations are rapidly forgotten.

Silent evidence pervades everything connected to the notion of history . By history, I don’t just mean those learned-but-dull books in the history section (with Renaissance paintings on their cover to attract buyers). History, I will repeat, is any succession of events seen with the effect of posteriority .

This bias extends to the ascription of factors in the success of ideas and religions, to the illusion of skill in many professions, to success in artistic occupations, to the nature versus nurture debate, to mistakes in using evidence in the court of law, to illusions about the “logic” of history—and of course, most severely, in our perception of the nature of extreme events.

You are in a classroom listening to someone self-important, dignified, and ponderous (but dull), wearing a tweed jacket (white shirt, polka-dot tie), pontificating for two hours on the theories of history. You are too paralyzed by boredom to understand what on earth he is talking about, but you hear the names of big guns: Hegel, Fichte, Marx, Proudhon, Plato, Herodotus, Ibn Khaldoun, Toynbee, Spengler, Michelet, Carr, Bloch, Fukuyama, Schmukuyama, Trukuyama. He seems deep and knowledgeable, making sure that no attention lapse will make you forget that his approach is “post-Marxist,” “postdialectical,” or post-something, whatever that means. Then you realize that a large part of what he is saying reposes on a simple optical illusion! But this will not make a difference: he is so invested in it that if you questioned his method he would react by throwing even more names at you.

It is so easy to avoid looking at the cemetery while concocting historical theories. But this is not just a problem with history. It is a problem with the way we construct samples and gather evidence in every domain . We shall call this distortion a bias, i.e., the difference between what you see and what is there. By bias I mean a systematic error consistently showing a more positive, or negative, effect from the phenomenon, like a scale that unfailingly shows you a few pounds heavier or lighter than your true weight, or a video camera that adds a few sizes to your waistline. This bias has been rediscovered here and there throughout the past century across disciplines, often to be rapidly forgotten (like Cicero’s insight). As drowned worshippers do not write histories of their experiences (it is better to be alive for that), so it is with the losers in history, whether people or ideas. Remarkably, historians and other scholars in the humanities who need to understand silent evidence the most do not seem to have a name for it (and I looked hard). As for journalists, fuhgedaboudit! They are industrial producers of the distortion.