by Jim Mcinvale

Created on: March 22, 2010

It is the negative space that gives form and relevance to the objective in a work of art. In "The Black Swan", Taleb shows that it is the unknown that gives substance to all of human knowledge, and that our knowledge is but a collection of crude marks on a vast canvas of ignorance. We know much less than we think we know, and understand even that poorly. Further, our history, both personal and collective, is governed by events that we did not predict, could not have predicted, and really do not comprehend.

Taleb defines the black swan concept early on. A black swan is an event with three characteristics: unpredictability, extreme impact, and (most unfortunately) the power to inspire us to contrive ex post facto explanations. For much of history, it seems, conventional wisdom held that swans – all swans - were white. When Europeans colonized Australia and found black swans, however, an entire body of knowledge was upended. That is a key concept. Some events out there will obliterate all prior understanding. These events reside in a province Taleb dubs “Extremistan.”

To illustrate the concept, he proposes a thought experiment (he uses these quite a lot) in which you measure the height of one hundred adult humans and compute the average. Even if the next person measured is the world’s tallest human, he will not disrupt the average very much. The height of humans is a type of knowledge that resides in Mediocristan.  Now, do the same with wealth. If Bill Gates is the 101st, he will completely swamp the average. Wealth is from Extremistan.  

Despite our very limited understanding of high-impact black swan events this, we always go back and contrive an explanation: a story that would have allowed us to predict those events. Narrative fallacy is a term the author uses to describe a process whereby we fit facts (connected or not) to a preconceived story. After the dust settles, we tell ourselves that we are smarter now and stand waiting under the hammer - waiting for the next Black Swan, drunk with the false belief that we understand the risk and are somehow protected from it.

Taleb cites a number of mental traps in addition to the narrative fallacy. Epistemic arrogance is a term he uses to tell us that we are not nearly as smart as we think, and confirmation error is how he describes our tendency to look for instances that confirm our beliefs. It is our nature, it seems, to connect random dots (facts), weave a story, and then force

• 1
• 2
• Next Page >>