The Black Swan: The Impact of the Highly Improbable

These nonlinear relationships are ubiquitous in life. Linear relationships are truly the exception; we only focus on them in classrooms and textbooks because they are easier to understand. Yesterday afternoon I tried to take a fresh look around me to catalog what I could see during my day that was linear. I could not find anything, no more than someone hunting for squares or triangles could find them in the rain forest – or, as we will see in Part Three, any more than someone looking for bell-shape randomness finding it in socioeconomic phenomena.

You play tennis every day with no improvement, then suddenly you start beating the pro.

Your child does not seem to have a learning impediment, but he does not seem to want to speak. The schoolmaster pressures you to start considering “other options”, namely therapy. You argue with her to no avail (she is supposed to be the “expert”). Then, suddenly, the child starts composing elaborate sentences, perhaps a bit too elaborate for his age group. I will repeat that linear progression, a Platonic idea, is not the norm.

Process over Results

We favor the sensational and the extremely visible. This affects the way we judge heroes. There is little room in our consciousness for heroes who do not deliver visible results – or those heroes who focus on process rather than results.

However, those who claim that they value process over result are not telling the whole truth, assuming of course that they are members of the human species. We often hear the semi-lie that writers do not write for glory, that artists create for the sake of art, because the activity is “its own reward”. True, these activities can generate a steady flow of autosatisfaction. But this does not mean that artists do not crave some form of attention, or that they would not be better off if they got some publicity; it does not mean that writers do not wake up early Saturday morning to check if The New York Times Book Review has featured their work, even if it is a very long shot, or that they do not keep checking their mailbox for that long-awaited reply from The New Yorker. Even a philosopher the caliber of Hume spent a few weeks sick in bed after the trashing of his masterpiece (what later became known as his version of the Black Swan problem) by some dim-thinking reviewer – whom he knew to be wrong and to have missed his whole point.

Where it gets painful is when you see one of your peers, whom you despise, heading to Stockholm for his Nobel reception.

Most people engaged in the pursuits that I call “concentrated” spend most of their time waiting for the big day that (usually) never comes.

True, this takes your mind away from the pettiness of life – the cappuccino that is too warm or too cold, the waiter too slow or too intrusive, the food too spicy or not enough, the overpriced hotel room that does not quite resemble the advertised picture – all these considerations disappear because you have your mind on much bigger and better things. But this does not mean that the person insulated from materialistic pursuits becomes impervious to other pains, those issuing from disrespect. Often these Black Swan hunters feel shame, or are made to feel shame, at not contributing. “You betrayed those who had high hopes for you”, they are told, increasing their feeling of guilt. The problem of lumpy payoffs is not so much in the lack of income they entail, but the pecking order, the loss of dignity, the subtle humiliations near the watercooler.

It is my great hope someday to see science and decision makers rediscover what the ancients have always known, namely that our highest currency is respect.

Even economically, the individual Black Swan hunters are not the ones who make the bucks. The researcher Thomas Astebro has shown that returns on independent inventions (you take the cemetery into account) are far lower than those on venture capital. Some blindness to the odds or an obsession with their own positive Black Swan is necessary for entrepreneurs to function. The venture capitalist is the one who gets the shekels. The economist William Baumol calls this “a touch of madness”. This may indeed apply to all concentrated businesses: when you look at the empirical record, you not only see that venture capitalists do better than entrepreneurs, but publishers do better than writers, dealers do better than artists, and science does better than scientists (about 50 percent of scientific and scholarly papers, costing months, sometimes years, of effort, are never truly read). The person involved in such gambles is paid in a currency other than material success: hope.

Human Nature, Happiness, and Lumpy Rewards

Let me distill the main idea behind what researchers call hedonic happiness.

Making $1 million in one year, but nothing in the preceding nine, does not bring the same pleasure as having the total evenly distributed over the same period, that is, $100,000 every year for ten years in a row. The same applies to the inverse order – making a bundle the first year, then nothing for the remaining period. Somehow, your pleasure system will be saturated rather quickly, and it will not carry forward the hedonic balance like a sum on a tax return. As a matter of fact, your happiness depends far more on the number of instances of positive feelings, what psychologists call “positive affect”, than on their intensity when they hit. In other words, good news is good news first; how good matters rather little. So to have a pleasant life you should spread these small “affects” across time as evenly as possible. Plenty of mildly good news is preferable to one single lump of great news.

Sadly, it may be even worse for you to make $10 million, then lose back nine, than to making nothing at all! True, you may end up with a million (as compared to nothing), but it may be better had you got zilch. (This assumes, of course, that you care about financial rewards.)

So from a narrowly defined accounting point of view, which I may call here “hedonic calculus”, 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. Consider that our major satisfaction for thousands of years came in the form of food and water (and something else more private), and that while we need these steadily, we quickly reach saturation.

The problem, of course, is that we do not live in an environment where results are delivered in a steady manner – Black Swans dominate much of human history. It is unfortunate that the right strategy for our current environment may not offer internal rewards and positive feedback.

The same property in reverse applies to our unhappiness. It is better to lump all your pain into a brief period rather than have it spread out over a longer one.

But some people find it possible to transcend the asymmetry of pains and joys, escape the hedonic deficit, set themselves outside that game – and live with hope. There is some good news, as we see next.

The Antechamber of Hope

For Yevgenia Krasnova, a person could love one book, at most a few – beyond this was a form of promiscuity. Those who talk about books as commodities are inauthentic, just as those who collect acquaintances can be superficial in their friendships. A novel you like resembles a friend. You read it and reread it, getting to know it better. Like a friend, you accept it the way it is; you do not judge it. Montaigne was asked “why” he and the writer Etienne de la Boetie were friends – the kind of question people ask you at a cocktail party as if you knew the answer, or as if there were an answer to know. It was typical of Montaigne to reply, “Parce que c’etait lui, parce que c’etait moi” (because it was him and because it was me). Likewise, Yevgenia claims that she likes that one book “because it is it and because I am me”. Yevgenia once even walked out on a schoolteacher because he analyzed that book and thus violated her rule. One does not sit idle listening as people wax analytical about your friends. A very stubborn schoolchild she was.

This book she has as a friend is Il deserto del tartari, by Dino Buzzati, a novel that was well known in Italy and France during her childhood, but that, strangely, nobody she knows in America had heard of. Its English title is mistranslated as The Tartar Steppe instead of The Desert of the Tartars.

Yevgenia encountered II deserto when she was thirteen, in her parents’ weekend country house in a small village two hundred kilometers outside Paris, where their Russian and French books multiplied without the constraints of the overfed Parisian apartment. She was so bored in the country that she could not even read. Then, one afternoon, she opened the book and was sucked into it.

Inebriated by Hope

Giovanni Drogo is a man of promise. He has just graduated from the military academy with the rank of junior officer, and active life is just starting. But things do not turn out as planned: his initial four-year assignment is a remote outpost, the Bastiani fortress, protecting the nation from the Tartars likely to invade from the border desert – not too desirable a position. The fortress is located a few days by horseback from the town; there is nothing but bareness around it – none of the social buzz that a man of his age could look forward to. Drogo thinks that his assignment in the outpost is temporary, a way for him to pay his dues before more appealing positions