Nassim Taleb

Black Swans – Outliers and their innate unpredictability

Nassim Taleb’s most famous book, Black Swans, explores and analyzes events that are wildly unpredictable but that have had a life-changing impact on society and all of our lives, such as 9/11. The term black swan comes from the example of a rare black swan that reveals an error of induction. Someone looking at swans may deduce that because all of the swans he has seen are white, all swans must be white.

This line of reasoning represents a problem of induction first explored by David Hume, one of the most important philosophers of the 18th century. Hume suggested that we build impressions based on past experiences, and use these impressions to guide us to an overarching idea of how the world is. He demonstrates that this is problematic, because we are forming conclusions that go beyond the past instances that we have experienced, such in the case of the black swan.⁴

When a black swan comes along, even though it is rare, it shatters that knowledge that the observer thought he had. Afterwards, according to Taleb, the observer reconfigures their ideologies in a manner that allowed for them to claim the black swan would have been predictable.

Taleb describes our tendency to try and explain rare occurrences in hindsight. We often attempt to show after a rare event has happened that it was in fact predictable. Often, this approach takes a scientific form that tries to prove that the occurrence was in fact logical and refutes the randomness of the black swan event. However, Taleb makes it clear that he believes black swans are inherently unpredictable and that no matter how complex and innovative we are able to make our predictive models, some events will forever be incalculable.⁵

In Black Swan, Taleb discusses three key problems in dogmatic approaches to knowledge. The first problem is an illusion of understanding, where we think that we know enough about a topic to be an expert on it. Taleb claims that no matter how much we learn about a particular topic, the world is too random for us to ever really “get”.⁶ This is why he has a particular disdain for any ‘experts’, because he believes that human knowledge is constantly evolving and that we shouldn’t cling onto any preconceived notions about how the world works.⁷

The second problem is that by looking into the past, we distort information in order to make it sensible because we now have more knowledge about that particular event. This is sometimes known as the hindsight bias. Connecting the dots in hindsight causes us to believe that we can predict even the rarest of occurrences, which Taleb disagrees with.⁶

Taleb identifies the third problem of the danger of categorization because it simplifies reality. As human beings, we like things to be neat and fit into a digestible story format; Taleb warns that the world cannot be reduced to such simplicity. He acknowledges that categorization is necessary for us to avoid being overwhelmed by all the information we encounter, but he says that “it becomes pathological when the category is seen as definitive, preventing people from considering the fuzziness of boundaries”.¹

Antifragility- strength in uncertainty

Moving on from emphasizing the randomness and unpredictability of black swans in his 2007 novel, Nassim Taleb’s next book, Antifragile, explores the way that systems actually benefit from disorder, mistakes, and volatility. He examines antifragility through 3 key lessons:

1. While fragile things break under stress, antifragile things improve from it.⁸

Adaptability and durability are sought after qualities, and they fall under being antifragile. Taleb suggests antifragile systems actually depend on volatility, and that therefore, we shouldn’t shy away from chaos.⁹

1. Antifragile systems are made up of fragile parts.⁸

Taleb believes that in order for a holistic system to be antifragile, its constituent parts need to be fragile. He uses the example of evolution. As a system, evolution is the very definition of antifragile, constantly adapting when stressors are thrown its way. But evolution rests on fragile components – lives – which are not able to thrive through uncertain conditions. Taleb urges us to understand from this fact that failures help a system get stronger and improve, even if individual parts must fail for an overall system to thrive.⁹

1. Antifragile systems are successful because they build extra capacity when they are put under stress.⁸

According to Taleb, growth only occurs through enduring volatility and distress. Just as you build muscle by breaking down your muscles in the gym, Taleb claims that systems will improve by being exposed to difficulties. When you go to the gym your body responds by getting stronger. Similarly, when a system faces shock, it will build up overcompensating resources that will improve its chances of succeeding the next time it faces a stressor.⁹

Based on these three key lessons, Taleb demonstrates that we must welcome uncertainty and stressors because they are what make systems stronger. He believes that shielding systems from distress only serves to make them weak and crumble in the face of opposition. Just as an overprotective mother does little to prepare her child to face the real world, trying to protect a system from any stress makes it likely to fail when distress (black swans) inevitably comes. Taleb writes in Antifragile, “This is the tragedy of modernity: as with neurotically overprotective parents, those trying to help are often hurting us the most.” ¹

Nassim Taleb was born in 1960, in Amioun, Lebanon. Yet, we may want to avoid designating him as Lebanese. Taleb once said, “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.”¹⁰ Levantine is an approximate historical geographical area without distinct boundaries. Taleb’s remark demonstrates that much like his ideas, he doesn’t like his identity to be restricted by categories or boundaries.

Taleb was extremely intelligent from a young age and performed very well in school. He had the highest grades in his school in Amioun, yet expressed that he did not feel the education system reflected how life really was. He believed that the way schools were set up actually limited the amount of knowledge students had access to. He viewed school as a “plot designed to deprive people of erudition by squeezing their knowledge into a narrow set of authors.”¹⁰ Yet, perhaps realizing that he had to work from within the system to change the system, Taleb continued his education, eventually receiving his doctorate from the University of Paris. He also holds an MBA from the Wharton Business School.¹²

After leaving school, Taleb worked on Wall Street as a derivatives trader for over 20 years. He specialized in trading risks and quickly came to realize that “managing without buffers was irresponsible” because black swans will always exist.¹¹ He quickly emphasized that “tail events”, referring to either end of the bulge of bell curves, need to be taken into account, and began to criticize the risk management methods used in the financial world that was based on averages, not anomalies. While the financial system predicted that averages would be more accurate the more the group was widened (or the more interconnected the globe became), Taleb viewed this monotony as a threat because it made the system fragile.¹¹ He left Wall Street in 2006, and his beliefs were confirmed by the 2008 financial crisis.

Shifting gears, Taleb left his career to become an academic, a mathematical researcher, and a philosopher. He has written a number of best-selling books and dozens more critical essays. He is known for his five-volume philosophical literary series Incerto that includes his most popular books Fooled by Randomness, Black Swan, and Antifragile. His most popular book, Black Swan, was called one of the most influential books since WWII by The Sunday Times and has been translated into over 30 different languages.¹⁰

Today, you’d be hard-pressed to find a medium that Nassim Taleb isn’t involved in. He continues to write scholarly essays, give talks, appear in the news, and occasionally, engage in Twitter fights with his critics.¹³ He has been vocal about his irritation at COVID-19 being referred to as a black swan, as he believes the pandemic was predictable – China raised the alarm months before it became a global issue.¹¹

As mentioned, COVID-19 has demonstrated some of Nassim Taleb’s fear of interconnectivity. Long before, he once said, “Globalization has created this interlocking fragility. At no time in the history of the universe has the cancellation of a Christmas order in New York meant layoffs in China.” ¹

While most people may view globalization as a positive, Taleb has never been afraid of controversial opinions, as stated in his book Antifragile: “Difficulty is what wakes up the genius”.¹ That may be because he believes “You may never know what type of person someone is unless they are given opportunities to violate moral or ethical codes.” ¹

He advocates against the status quo, directing that “If you hear a “prominent” economist using the word ‘equilibrium,’ or ‘normal distribution,’ do not argue with him; just ignore him, or try to put a rat down his shirt.” ¹ For Taleb, blindly following the claims of experts limits knowledge instead of expanding it.

“The irony of the process of thought control: the more energy you put into trying to control your ideas and what you think about, the more your ideas end up controlling you.” quoted from his book Antifragile.¹

“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.” quoted from his book Black Swan.¹

Put boldly, Taleb views indisputable knowledge as a farce, saying in Black Swan that he “will repeat the following until I am hoarse: it is contagion that determines the fate of a theory in social science, not its validity.” ¹

On his website, Nassim Taleb has a whole host of videos, academic articles, and podcasts open to the public. As we all try and figure out how to navigate the global pandemic, we may be interested in listening to what the risk strategist has to say about living in times of uncertainty. You can listen to this short podcast where Taleb discusses how the pandemic has brought socialism to America. Or, if you’re looking for more practical advice on how to handle the pandemic, listen to his podcast with EconTalk, an economics podcast.

His most recent book, Skin in the Game, was published in 2018. The overarching premise of the book is simple: if you have no skin in the game, you shouldn’t be in the game.¹³ Only with skin in the game are failures a real possibility and as we’ve learned from Antifragile, failure is what makes a system stronger. If you’re not sure if the book is right for you just yet, you can listen to this Talk by Google where Taleb discusses the book in detail.

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2. Farnam Street. (2020, March 1). Who is Nassim Taleb? Antifragile thinking for a fat-tailed world. https://fs.blog/intellectual-giants/nassim-taleb/
3. Movement Capital. (2019, April 11). 7 key takeaways from Taleb’s Antifragile. Seeking Alpha. https://seekingalpha.com/article/4254095-7-key-takeaways-from-talebs-antifragile
4. Hume, D. (1978). A treatise of human nature. Oxford University Press on Demand.
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6. Norupp. (2020, June 12). The Black Swan by Nassim Taleb: Summary and Key Takeaways. https://www.norupp.com/the-black-swan-summary
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8. Goeke, N. (2019, June 17). Antifragile Summary. Four Minute Books. https://fourminutebooks.com/antifragile-summary/
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10. O’Connor, J. J., & Robertson, E. F. (2019, January). Nassim Nicolas Taleb. Maths History. https://mathshistory.st-andrews.ac.uk/Biographies/Taleb/
11. Avishai, B. (2020, April 21). The pandemic isn’t a Black swan but a portent of a more fragile global system. The New Yorker. https://www.newyorker.com/news/daily-comment/the-pandemic-isnt-a-black-swan-but-a-portent-of-a-more-fragile-global-system
12. NYU. (n.d.). Nassim Nicholas Taleb. NYU Tandon School of Engineering. Retrieved September 9, 2020, from https://engineering.nyu.edu/faculty/nassim-nicholas-taleb
13. Weisenthal, J. (2014, January 6). Nassim Taleb tells us why he goes nuclear on his critics on Twitter. Business Insider. https://www.businessinsider.com/nassim-taleb-on-twitter-fights-2014-1
14. Williams, Z. (2018, February 23). Skin in the game by Nassim Nicholas Taleb review – how risk should be shared. The Guardian. https://www.theguardian.com/books/2018/feb/22/skin-in-the-game-nassim-nicholas-taleb-review