BlackSwans

The Black Swan Nassim Nicholas Taleb

Very Good! (as expected)

• A small number of black swans explain almost everything in our world, from the success of idea and religions to the dynamics of historical events, to elements of our personal lives
• The central idea of this book concerns our blindness with respect to randomness, particularly the large deviations: Why do we scientists or nonscientists, hot shots or regular Joes, tend to see the pennies instead of the dollars?
• Black swan logic makes what you don't know far more relevant that what you do know
• The inability to predict outliers implies the inability to predict the course of history.
• Black swans being unpredictable we need to adjust to their existence (rather than naively try to predict them)
• The read free markets work is because they allow people to be lucky, thanks to aggressive trial and error, not by giving rewards or "incentives" for skill. The strategy is, then to tinker as much as possible and try to collect as many Black Swan opportunities as you can.
• You cant assess the danger a criminal poses by examining only what he does on an ordinary day ? The normal is often irrelevant.
• Our world is dominated by the extreme, the unknown, and the very improbable (improbable according to our current knowledge) and all the while we spend our time engaged in small talk, focusing on the known, and the repeated. We need to use extreme events as the starting point and not treat it as an exception we can ignore. The future will be increasingly less predictable, while human nature and social "science" try to hide this from us.

• History is opaque. You see what comes out, not the script that produces events, the generator of history

  The studious examination of the past in the greatest of detail does not teach you much about the mind of History; it only give you the illusion of understanding it. History and societies do not crawl. They make jumps

  History

• The American economy has leveraged itself heavily on the idea generation, which explains why losing manufacturing jobs can be coupled with a rising standard of living.
• Mediocristan: When your sample is large, no single instance will significantly change the aggregate or the total. Extremistan: inequalities are such that one single observation can disproportionately impact the aggregate, or the total.
• Extremistan can produce Black Swans, and does, since a few occurrences have had huge influences on history. This is the main idea of the book.
• In Mediocristan, you can be comfortable with what you have measured – provided that you know for sure that it comes form Mediocristan. You can also be comfortable with what you have learned from the data. Its not possible to have a black swan style surprises such that a single event can dominate a phenomenon.
• In Extremistan you will have trouble figuring out the average from any sample since it can depend so much on one single observation. The idea is not more difficult than that. Once unit can easily affect the total in a disproportionate way. Here, you should always be suspicious of the knowledge you derive from data. Knowledge grows slowly and erratically with the addition of data, some of it extreme.

• Mediocristan: likely to be found in our ancestral environment you can figure out whats going on after a while History crawls

  Extremistan: likely to be found in our modern environment takes long time to figure out whats going on History makes jumps

• Gray swans: scale-invariant, power lows, Paretian processes
• Mistaking a naive observation of the past as something definitive or representative of the future is the one and only cause of our inability to understand the black swan.
• In the summer of 1982, large American banks lost close to all their past earnings (cumulatively) about everything they ever made in the history of American banking – everything.
• The black swan is observer dependent. eg: the non-feeding on the 1000th day is a black swan for the turkey, not the butcher. You can eliminate a Black Swan by science (if you can) or by keeping an open mind.
• Knowledge does not often lead to appropriate action because we tend to forget what we know, or forget how to process it properly if we do not pay attention, even when we are experts.
• People can manage to effortlessly solve a problem in a social situation but struggle when it is presented as an abstract logical problem. We tend to use different mental machinery – so called module – in different situations.
• Mathematicians will try to convince you that their science is useful to society by pointing out instances where it proved helpful, not those where it was a waste of time, or worse, those numerous application that inflicted a severe cost on society.
• The sources of Black Swans today have multiplied beyond measurability.
• The way to avoid the ills of the narrative fallacy is to favor experimentation over storytelling

UnitTests

• What matter is not how after you are right, but how large your cumulative errors are. And these cumulative errors depend largely on the big surprises, the big opportunities.
• I know that history is going to be dominated by an improbably event, I just dont know what that event will be.
• The policies we need to make decisions on should depend far more on the range of possible outcomes than on the expected final number. The worse case is far more consequential than the forecast itself. This is particularly true if the bad scenario is not acceptable.

• Poppers central argument is that in order to predict historical events you need to predict technological innovation, itself fundamentally unpredictable.

  To understand the future to the point of being able to predict it, you need to incorporate elements from this future itself. If you know about the discovery you are about to make in the future, then you have already made it.

• Poincare was in such a rush that he did not bother correcting typos and grammatical errors in his texts, even after spotting them, since he found doing so a gross misuse of his time.
• A true forecast is done organically by a system, not by fiat. Once single institution cannot aggregate knowledge, many important pieces of information will be missing. Society as a whole thinks outside the box.
• As individuals we should love free markets because operators in them can be as incompetent as they wish.
• In practice, randomness is fundamentally incomplete information.
• Know how to rank beliefs not according to their plausibility but by the harm they may cause.
• Knowing that you cannot predict does not mean that you cannot benefit from unpredictability. Maximize the serendipity around you

• If you know that you are vulnerable to prediction errors, and if you accept that most "risk measures" are flawed, b/c of black swans, then your strategy is to be as hyperconservative and hyperaggressive as you can be instead of being mildly aggressive or conservative.

  Put some of your assets, say 85 or 90 percent, in extremely safe instruments, like Treasury bills, the remaining you put in extremely speculative bets, as leveraged as possible (like options), preferably venture capital-style portfolios.

• The central idea of uncertainty: in order to make a decision you need to focus on the consequences rather than the probability. Much of my life is based on it. [BROKEN LINK: DecisionMaking]. Advice
• Merton and Scholes were founding partners in LTCM.

• Mother nature likes redundancies, three different types of redundancies Redundancy equals insurance

  The exact opposite of redundancy is naive optimization.

  An economist would find it inefficient to maintain two lungs and two kidneys

• Debt makes you fragile under perturbations
• Almost all the history of thought is about what we know, or think we know. The Black Swan is the very first attempt in the history of thought to provide a map of where we get hurt by what we don't know, to set systematic limits to the fragility of knowledge.
• In the past religion has saved lives by taking the patient away from the doctor.
• What is fragile should break early, while its still small.
• No socialization of losses and privatization of gains Whatever may need to be bailed out should be nationalized; whatever does not need a bail out should be free, small, and risk-bearing. Libertarianism Limits
• Citizens should not depend on financial assets as a repository of value and should not rely on fallible "expert" advice for their retirement.