The Directed Life

Notes from Taleb’s The Black Swan

Date read: 3/14/23

Attributes of a Black Swan: (xxii)

• Outlier in the realm of regular expectation
• Carries an extreme impact
• Retrospective predictability

It is easy to see that life is the cumulative effect of a handful of significant shocks. (xxiii)

The unexpected nature of Black Swans makes what you don’t know far more relevant than anything you do know. (xxxiii)

The inability to predict outliers implies the inability to predict the course of history, given the share of these events in the dynamics of events. But we act as though we are able to predict historical events, or, even worse, as if we are able to change the course of history. (xxiv)

Technology almost never comes from precise planning—innovations almost always happen as a result of Black Swans. This is why focusing on tinkering becomes extremely important. Free markets work because it allows people to be lucky thanks to a lot of trial and error. Tinker as much as you can to collect as many Black Swan opportunities as you can. (xxv)

We tend to learn the precise but not the general. (xxv)

In the past an academic relied on a patron’s support—now academics rely on the opinions of their colleagues as support. (xxxi)

There’s a difference between “cheap signaling” and turning belief into action. (6)

There will always be incompleteness in anyone’s grasp of historical events and how they came to be. (8)

Triplet of opacity: (8)

• Illusion of understanding (world is way more random than we realize)
• Retrospective distortion (seeing an event clearly after the fact)
• Overvaluation of factual information

History and societies do not crawl. They make jumps. They go from fracture to fracture, with a few vibrations in between. Yet we (and historians) like to believe in the predictable, small incremental progression. (11)

Journals and diaries are so valuable because it allows us to go back and study events in the context of which they were occurring. (13)

Categorizing is necessary for humans, but it becomes pathological when the category is seen as definitive, preventing people from considering the dizziness of boundaries, let alone revising their categories. (15)

The best way to prove the arbitrary character of these categories, and the contagion effect they produce, is to remember how frequently clusters reverse in history. (16)

Goal should be to acquire as much capital to provide you with the utmost freedom to pursue activities for their own sake rather than for increased material comfort. (20-21)

Taleb’s romantic definition of the flaneur lifestyle:

To slowly distill my single idea, I wanted to become a flaneur, a professional meditator, sit in cafes, lounge, unglued to desks and organization structures, sleep as long as I needed, read voraciously, and not owe any explanation to anybody. I wanted to be left alone in order to build, small steps at a time, an entire system of thought based on my Black Swan idea. (21)

Expose ideas in raw form to be judged by the public. (25)

Leverage laziness: transition as much as possible to an “idea” person (selling scalable intellectual product) from a “labor” person (selling your work and time). (27-28)

What professions allow you to add zeroes onto income with no increased labor? (28)

However, scalable profession is only good if you are successful / lucky. Success is random with huge disparities. (28-29)

Wealth lives in Extremistan. In Extremistan, one observation can disproportionately affect the aggregate. (33)

Quality of returns is actually not observable from past data. This places an undue urge for immediate profits and causes a disregard for events that are high-impact low probability. (44)

True erudition is dissatisfaction with one’s own knowledge, implicitly acknowledging one’s blind spots. (48)

It’s easier to be confident in what’s wrong than what’s right. (58)

Scientists believe that it is the search for their own weaknesses that makes them good chess players, not the practice of chess that turns them into skeptics. Similarly, the speculator George Soros, when making a financial bet, keeps looking for instances that would prove his initial theory wrong. This, perhaps, is true self-confidence: the ability to look at the world without the need to find signs that stroke one’s ego. (59)

The modern world is dominated by very rare events. (61)

It takes a lot more than a thousand days to accept that a writer is in gifted, a market will not crash, a war will not happen, a project is hopeless, a country is “our ally,” a company will not go bust, a brokerage-house security analyst is not a charlatan, or a neighbor will not attack us. In the distant past, humans could make inferences far more accurately and quickly. (61)

It’s impossible for us to perceive anything in true raw form without some sort of interpretation. (65)

Rules help reduce matters to fit inside of our heads. Our need to simplify is what makes us perceive the world to be much less random than it actually is. (69)

We are prone to narrativity and causality. (70)

We learn from repetition—at the expense of events that have not happened before. (78)

Misunderstanding of Black Swan can be largely attributed to System 1 default thinking. (83)

The way to avoid the ills of the narrative fallacy is to favor experimentation over storytelling, experience over history, and clinical knowledge over theories. (84)

Use storytelling to convincingly convey the right messages. (84)

The most interesting professions all involve a concentration of success: intellectual, scientific, artistic endeavors. (85)

Nonlinearities are completely nonintuitive to us. In more primitive environments process and result were way more closely connected. (87)

The world is even more nonlinear than we think. (88)

Respect is the highest currency. (90)

It feels better to receive smaller rewards over time than one big reward (hedonic happiness). The current environment does not offer the proper internal rewards / positive feedback to push in actives that offer a large lump sum reward. (91)

Some business bets in which one wins big but infrequently, yet loses small but frequently, are worth making if others are suckers for them and if you have the personal and intellectual stamina. (97)

Bleeding a little each day:

You lose steadily, daily change for a long time, except when some event takes place for which you get paid disproportionately well. No single event can make you blow up, on the other hand—some changes in the world can produce extraordinarily large profits that pay back such bleed for years, sometimes decades, sometimes even centuries. (97)

Two of Taleb’s intellectual heroes are Montaigne and Bacon. (101)

Reference point argument: don’t compute odds based off the winning gambler. Base the odds off of everyone who started in the same place. (119)

Silent evidence distorts importance of Black Swans, along with confirmation error and the narrative fallacy. (121)

Before the Enlightenment, probability remained fuzzy, which is necessary for the essence of its uncertain nature. (128)

I propose that if you want a simple step to a higher form of life, as distant from the animal as you can get, then you may have to denarrate, that is, shut down the television set, minimize time spent reading newspapers, ignore the blogs. Train your reasoning abilities to control your decisions; nudge System 1 (the heuristic or experimental system) out of the important ones. Train yourself to spot the difference between the sensational and the empirical. This insulation from the toxicity of the world will have an additional benefit: it will improve your well-being. (133)

Epistemically arrogance bears a double effect: we overestimate what we know, and underestimate uncertainty, by compressing the range of possible uncertain states (i.e., by reducing the space of the unknown). (140)

We too often attribute success to skill and failure to events outside of our control. (152)

We don’t consider the probability of events straying from our projections. (157)

The policies we need to make decisions on should depend far more on the range of possible outcomes than the expected final number. (161)

Almost everything of the moment is the product of serendipity. (166)

3 more inspirations: Popper, Poincare, and Hayek. (179)

We are anticipation machines, which is a product of evolution, but hurts us often in the modern world. (189)

There are some things of which you can be certain about. It’s important to be more confident about disconfirmation than confirmation. (192)

We overestimate misfortune’s effects. This might have the purpose of motivating us to perform important acts and dissuade us from unnecessary risks. (195)

The forward process is much more simple and accurate than the backward process. (196)

Learn to read history, get all the knowledge you can, do not frown on the anecdote, but do not draw any causal links, do not try to reverse engineer too much—but if you do, do not make big scientific claims. (199)

Avoid dependence on large scale predictions that may have a large impact. (203)

Know how to rank beliefs not according to their plausibility but by the harm they may cause. (203)

The barbell strategy: 90% investments in extremely safe investments, 10% I’m extremely speculative bets as leveraged as possible. This allows you to cap your risk while still providing a large upside. (205)

Distinguish where lack of predictability becomes extremely beneficial and when it becomes extremely harmful. (206)

Black swan businesses: movies, publishing, scientific research, venture capital. (207)

For your exposure to the positive Black Swan, you do not need to have any precise understanding of the structure of uncertainty. I find it hard to explain that when you have a very limited loss you need to get as aggressive, as speculative, and sometimes as “unreasonable” as you can be. (207)

Collect as many free nonlottery tickets (those with open-ended payoffs) as you can, and, once they start paying off, do not discard them. Work hard, not in grunt work, but in chasing such opportunities and maximizing exposure to them. (209)

Beware of precise government plans. (209)

Put yourself in situations where favorable consequences are much larger than unfavorable ones. (210)

Rosen and “tournament outcomes.” Question becomes skill or randomness for winning the large portion of the pot? (216)

Remember this: the Gaussian-bell curve variations face a headwind that makes probabilities drop at a faster and faster rate as you move away from the mean, while “scalables,” or Mandelbrotian variations, do not have such a restriction. (234)

In the absence of a feedback process you look at models and think they confirm reality. (268)

History runs forward, not backward. (268)

You can approach randomness as a Skeptical Empiricist (desired) or as a Platonist. (284)

Seek to stand above the rat race / pecking order instead of inside of it. (297)

It is more difficult to be a loser in a game you set up yourself. (297)

Take control of what you do. (297)

Our aversion to variability and desire for order, and our acting on those feelings, have helped precipitate severe crises. Making something artificially bigger (instead of letting it die early if it cannot survive stressors) makes it more and more vulnerable to a very severe collapse—as I showed with the Black Swan vulnerability associated with an increase in size. (329)

Big events never have parents—they’re always the first of their kind. This is why we can’t use the past to predict extreme events. (342)

You cannot do anything with knowledge unless you know where it stops, and the costs of using it. (370)

If it’s fragile, let it break early while it’s small. (374)

No socialization of losses and privatization of gains. Whatever may need to be bailed out should be nationalized; whatever does not need a bailout should be free, small, and risk-bearing. (374)

Optimize economics for our natural biological environment: smaller firms, richer ecology, no leverage. Entrepreneurs take the risks rather than bankers, companies die and new ones are born. (376)

A Black Swan cannot so easily destroy a man who has an idea of his final destination. (377)