The Impact of the Highly Improbable
081297381X
Nassim Nicholas Taleb
Notes
Consider a turkey that is fed everyday. Every single feeding will firm up the bird’s belief that it is the general rule of life to be fed everyday by friendly members of the human race “looking out for its best interests,” as a politician would say. On the afternoon of the Wednesday before Thanksgiving, something unexpected will happen to the turkey. It will incur a revision of belief.
(Human nature shows that to achieve hedonic happiness) It does not pay to shoot for one large win. Mother Nature destined us to derive enjoyment from a steady flow of pleasant small, but frequent, rewards. As I said, the rewards do not have to be large, just frequent – a little bit here, a little bit there.
As drowned worshippers do not write histories of their experiences, so it is with losers in history, whether people or ideas.
We are explanation-seeking animals who tend to think that everything has an identifiable cause and grab the most apparent one as THE explanation.
What matters is not how often you are right, but how large your cumulative errors are.
What you should avoid is unnecessary dependence on large-scale harmful predictions – those and only those. Avoid big subjects that may hurt your future: be fooled in small matters, not in the large. Do not listen to economic forecasters or to predictors in social science…but do make your own forecast for a picnic. Know to rank your beliefs not according to their plausibility but by the harm they may cause.
If you know that you are vulnerable to prediction errors, and if you accept that most “risk measures” are flawed, because of the Black Swans, then your strategy is to be as hyper-conservative and hyper-aggressive as you can be instead of being mildly aggressive or conservative. [Barbell Strategy]
Do not try to predict precise Black Swans – it tends to make you more vulnerable to the ones you did not predict… Invest in preparedness, not in prediction.
Seize any opportunity or anything that looks like opportunity. [You have to be open for a positive Black Swan opportunity to present itself.]
I will go further: people who worry about pennies instead of dollars can be dangerous to society. They mean well, but…they are a threat to us. They are wasting our studies of uncertainty by focusing on the insignificant.