The Black Swan: The Impact of the Highly Improbable

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REMEMBRANCE OF THINGS NOT QUITE PAST

Our tendency to perceive – to impose – narrativity and causality are symptoms of the same disease – dimension reduction. Moreover, like causality, narrativity has a chronological dimension and leads to the perception of the flow of time. Causality makes time flow in a single direction, and so does narrativity.

But memory and the arrow of time can get mixed up. Narrativity can viciously affect the remembrance of past events as follows: we will tend to more easily remember those facts from our past that fit a narrative, while we tend to neglect others that do not appear to play a causal role in that narrative. Consider that we recall events in our memory all the while knowing the answer of what happened subsequently. It is literally impossible to ignore posterior information when solving a problem. This simple inability to remember not the true sequence of events but a reconstructed one will make history appear in hindsight to be far more explainable than it actually was – or is.

Conventional wisdom holds that memory is like a serial recording device like a computer diskette. In reality, memory is dynamic – not static – like a paper on which new texts (or new versions of the same text) will be continuously recorded, thanks to the power of posterior information. (In a remarkable insight, the nineteenth- century Parisian poet Charles Baudelaire compared our memory to a palimpsest, a type of parchment on which old texts can be erased and new ones written over them.) Memory is more of a self-serving dynamic revision machine: you remember the last time you remembered the event and, without realizing it, change the story at every subsequent remembrance.

So we pull memories along causative lines, revising them involuntarily and unconsciously. We continuously renarrate past events in the light of what appears to make what we think of as logical sense after these events occur.

By a process called reverberation, a memory corresponds to the strengthening of connections from an increase of brain activity in a given sector of the brain – the more activity, the stronger the memory. While we believe that the memory is fixed, constant, and connected, all this is very far from truth. What makes sense according to information obtained subsequently will be remembered more vividly. We invent some of our memories – a sore point in courts of law since it has been shown that plenty of people have invented child-abuse stories by dint of listening to theories.

The Madman’s Narrative

We have far too many possible ways to interpret past events for our own good.

Consider the behavior of paranoid people. I have had the privilege to work with colleagues who have hidden paranoid disorders that come to the surface on occasion. When the person is highly intelligent, he can astonish you with the most far-fetched, yet completely plausible interpretations of the most innocuous remark. If I say to them, “I am afraid that … ”, in reference to an undesirable state of the world, they may interpret it literally, that I am experiencing actual fright, and it triggers an episode of fear on the part of the paranoid person. Someone hit with such a disorder can muster the most insignificant of details and construct an elaborate and coherent theory of why there is a conspiracy against him. And if you gather, say, ten paranoid people, all in the same state of episodic delusion, the ten of them will provide ten distinct, yet coherent, interpretations of events.

When I was about seven, my schoolteacher showed us a painting of an assembly of impecunious Frenchmen in the Middle Ages at a banquet held by one of their benefactors, some benevolent king, as I recall. They were holding the soup bowls to their lips. The schoolteacher asked me why they had their noses in the bowls and I answered, “Because they were not taught manners”. She replied, “Wrong. The reason is that they are hungry”. I felt stupid at not having thought of this, but I could not understand what made one explanation more likely than the other, or why we weren’t both wrong (there was no, or little, silverware at the time, which seems the most likely explanation).

Beyond our perceptional distortions, there is a problem with logic itself. How can someone have no clue yet be able to hold a set of perfectly sound and coherent viewpoints that match the observations and abide by every single possible rule of logic? Consider that two people can hold incompatible beliefs based on the exact same data. Does this mean that there are possible families of explanations and that each of these can be equally perfect and sound? Certainly not. One may have a million ways to explain things, but the true explanation is unique, whether or not it is within our reach.

In a famous argument, the logician W. V. Quine showed that there exist families of logically consistent interpretations and theories that can match a given series of facts. Such insight should warn us that mere absence of nonsense may not be sufficient to make something true.

Quine’s problem is related to his finding difficulty in translating statements between languages, simply because one could interpret any sentence in an infinity of ways. (Note here that someone splitting hairs could find a self-canceling aspect to Quine’s own writing. I wonder how he expects us to understand this very point in a noninfinity of ways).

This does not mean that we cannot talk about causes; there are ways to escape the narrative fallacy. How? By making conjectures and running experiments, or as we will see in Part Two (alas), by making testable predictions.[24] The psychology experiments I am discussing here do so: they select a population and run a test. The results should hold in Tennessee, in China, even in France.

Narrative and Therapy

If narrativity causes us to see past events as more predictable, more expected, and less random than they actually were, then we should be able to make it work for us as therapy against some of the stings of randomness.

Say some unpleasant event, such as a car accident for which you feel indirectly responsible, leaves you with a bad lingering aftertaste. You are tortured by the thought that you caused injuries to your passengers; you are continuously aware that you could have avoided the accident. Your mind keeps playing alternative scenarios branching out of a main tree: if you did not wake up three minutes later than usual, you would have avoided the car accident. It was not your intension to injure your passengers, yet your mind is inhabited with remorse and guilt. People in professions with high randomness (such as in the markets) can suffer more than their share of the toxic effect of look-back stings: I should have sold my portfolio at the top; I could have bought that stock years ago for pennies and I would now be driving a pink convertible; et cetera. If you are a professional, you can feel that you “made a mistake”, or, worse, that “mistakes were made”, when you failed to do the equivalent of buying the winning lottery ticket for your investors, and feel the need to apologize for your “reckless” investment strategy (that is, what seems reckless in retrospect).

How can you get rid of such a persistent throb? Don’t try to willingly avoid thinking about it: this will almost surely backfire. A more appropriate solution is to make the event appear more unavoidable. Hey, it was bound to take place and it seems futile to agonize over it. How can you do so? Well, with a narrative. Patients who spend fifteen minutes every day writing an account of their daily troubles feel indeed better about what has befallen them. You feel less guilty for not having avoided certain events; you feel less responsible for it. Things appear as if they were bound to happen.

If you work in a randomness-laden profession, as we see, you are likely to suffer burnout effects from that constant second-guessing of your past actions in terms of what played out subsequently. Keeping a diary is the least you can do in these circumstances.

TO BE WRONG WITH INFINITE PRECISION

We harbor a crippling dislike for the abstract.

One day in December 2003, when Saddam Hussein was captured, Bloomberg News flashed the following headline at 13:01: U.S. TREASURIES RISE; HUSSEIN CAPTURE MAY NOT CURB TERRORISM.