The Black Swan: The Impact of the Highly Improbable

Neural correlates of the asymmetry: see Davidson’s work in Goleman (2003), Lane et al. (1997), and Gehring and Willoughby (2002). Csikszentmihalyi (1993, 1998) further explains the attractiveness of steady payoffs with his theory of “flow”.

Deferred rewards and its neural correlates: McLure et al. (2004) show the brain activation in the cortex upon making a decision to defer, providing insight on the limbic impulse behind immediacy and the cortical activity in delaying. See also Loewenstein et al. (1992), Elster (1998), Berridge (2005). For the neurology of preferences in Capuchin monkeys, Chen et al. (2005).

Bleed or blowup: Gladwell (2002) and Taleb (2004c). Why bleed is painful can be explained by dull stress; Sapolsky et al. (2003) and Sapolsky (1998). For how companies like steady returns, Degeorge and Zeckhauser (1999). Poetics of hope: Mihailescu (2006).

Discontinuities and jumps: classified by Rene Thorn as constituting seven classes; Thorn (1980).

Evolution and small probabilities: consider also the naive evolutionary thinking positing the “optimality” of selection. The founder of sociobiology, the great E.O. Wilson, does not agree with such optimality when it comes to rare events. In Wilson (2002), he writes:

The human brain evidently evolved to commit itself emotionally only to a small piece of geography, a limited band of kinsmen, and two or three generations into the future. To look neither far ahead nor far afield is elemental in a Darwinian sense. We are innately inclined to ignore any distant possibility not yet requiring examination. It is, people say, just good common sense. Why do they think in this shortsighted way?

The reason is simple: it is a hardwired part of our Paleolithic heritage. For hundreds of millennia, those who worked for short-term gain within a small circle of relatives and friends lived longer and left more offspring – even when their collective striving caused their chiefdoms and empires to crumble around them. The long view that might have saved their distant descendants required a vision and extended altruism instinctively difficult to marshal.

See also Miller(2000):

“Evolution has no foresight. It lacks the long-term vision of drug company management. A species can’t raise venture capital to pay its bills while its research team… This makes it hard to explain innovations”.

note that neither author considered my age argument.

CHAPTER 8

Silent evidence bears the name wrong reference class in the nasty field of philosophy of probability, anthropic bias in physics, and survivorship bias in statistics (economists present the interesting attribute of having rediscovered it a few times while being severely fooled by it).

Confirmation: Bacon says in On Truth, “No pleasure is comparable to the standing upon the vantage ground of truth (a hill not to be commanded and where the air is always clear and serene), and to see the errors, and wanderings, and mists, and tempests, in the vale below”. This easily shows how great intentions can lead to the confirmation fallacy.

Bacon did not understand the empiricists: he was looking for the golden mean. Again, from On Truth:

There are three sources of error and three species of false philosophy; the sophistic, the empiric and the superstitious …. Aristotle affords the most eminent instance of the first; for he corrupted natural philosophy by logic – thus he formed the world of categories. … Nor is much stress to be laid on his frequent recourse to experiment in his books on animals, his problems and other treatises, for he had already decided, without having properly consulted experience as the basis of his decisions and axioms. … The empiric school produces dogmas of a more deformed and monstrous nature than the sophistic or theoretic school; not being founded in the light of common notions (which however poor and superstitious, is yet in a manner universal and of general tendency), but in the confined obscurity of a few experiments.

Bacon’s misconception may be the reason it took us a while to understand that they treated history (and experiments) as mere and vague “guidance”, i.e., epilogy.

Publishing: Allen (2005), Klebanoff (2002), Epstein (2001), de Bellaigue (2004), and Blake (1999). For a funny list of rejections, see Bernard (2002) and White (1982). Michael Korda’s memoir, Korda (2000), adds some color to the business. These books are anecdotal, but we will see later that books follow steep scale-invariant structures with the implication of a severe role for randomness.

Anthropic bias: see the wonderful and comprehensive discussion in Bostrom (2002). In physics, see Barrow and Tipler (1986) and Rees (2004). Sornette (2004) has Gott’s derivation of survival as a power law. In finance, Sullivan et al. (1999) discuss survivorship bias. See also Taleb (2004a). Studies that ignore the bias and state inappropriate conclusions: Stanley and Danko (1996) and the more foolish Stanley (2000).

Manuscripts and the Phoenicians: for survival and science, see Cisne (2005). Note that the article takes into account physical survival (like fossil), not cultural, which implies a selection bias. Courtesy Peter Bevelin.

Stigler’s law of eponymy: Stigler (2002).

French book statistics: Lire, April 2005.

Why dispersion matters: more technically, the distribution of the extremum (i.e., the maximum or minimum) of a random variable depends more on the variance of the process than on its mean. Someone whose weight tends to fluctuate a lot is more likely to show you a picture of himself very thin than someone else whose weight is on average lower but remains constant. The mean (read skills) sometimes plays a very, very small role.

Fossil record: I thank the reader Frederick Colbourne for his comments on this subject. The literature calls it the “pull of the recent”, but has difficulty estimating the effects, owing to disagreements. See Jablonski et al. (2003).

Undiscovered public knowledge: here is another manifestation of silent evidence: you can actually do lab work sitting in an armchair, just by linking bits and pieces of research by people who labor apart from one another and miss on connections. Using bibliographic analysis, it is possible to find links between published information that had not been known previously by researchers. I “discovered” the vindication of the armchair in Fuller (2005). For other interesting discoveries, see Spasser (1997) and Swanson (1986a, 1986b, 1987).

Crime: the definition of economic “crime” is something that comes in hindsight. Regulations, once enacted, do not run retrospectively, so many activities causing excess are never sanctioned (e.g., bribery).

Bastiat: see Bastiat (1862-1864).

Casanova: I thank the reader Milo Jones for pointing out to me the exact number of volumes. See Masters (1969).

Reference point problem: taking into account background information requires a form of thinking in conditional terms that, oddly, many scientists (especially the better ones) are incapable of handling. The difference between the two odds is called, simply, conditional probability. We are computing the probability of surviving conditional on our being in the sample itself. Simply put, you cannot compute probabilities if your survival is part of the condition of the realization of the process.

Plagues: see McNeill (1976).