Summary & Key Takeaways
Humans are not good at predicting random and rare events. This hasn’t stopped us from trying, however, which gets us into trouble. We suffer from the narrative bias, which is when we try to tell a story about something (in this case the past) even when there is no story to tell. Many of the models used to try and predict these random and rare events are pointless as they don’t help. We must realize we lack the ability to predict certain things and take necessary precautions when the effects of these events are negative. We should also optimize for getting in front of as many positive rare events as we can.
Notes & Quotes
It only takes one
Even with a million white swans, it only takes one black swan to prove that not all swans are white
On successful ventures being the unexpected
“The more unexpected the success of such a venture, the smaller the number of competitors, and the more successful the entrepreneur who implements the idea"
“The payoff of a human venture is, in general, inversely proportional to what it is expected to be."
On the value of tinkering for entrepreneurs
“The strategy for the discoverers and entrepreneurs is to rely less on top-down planning and focus on maximum tinkering and recognizing opportunities when they present themselves"
“The strategy is to tinker as much as possible and try to collect as many Black Swan opportunities as you can"
On the value of a story
“Ideas come, stories stay"
On the differences in scalability of work
Jobs in which there is a cap on the amount of work you can do (paid by the hour, amount, etc) are not exposed to rare events but also don’t suffer as much.
On avoiding the confirmation bias
We need to be constantly looking at where we might be wrong. Darwin always kept trying to prove his theory wrong. Feynman once said that the easiest person to fool was yourself.
On the narrative fallacy
“The fallacy is associated with our vulnerability to over interpretation and our predilection for compact stories over raw truths. It severely distorts our mental representation of the world; it is particularly acute when it comes to the rare event"
“It takes considerable effort to see facts while withholding judgement and resisting explanations"
On avoiding the narrative fallacy
“The way to avoid the ills of the narrative fallacy is to favor experimentation over storytelling, experience over history, and clinical knowledge over theories"
On overestimating what we know
“we overestimate what we know, and underestimate uncertainty by compressing the range of possible uncertain states"
On serendipitous discovery
“as happens so often in discovery, those looking for evidence did not find it; those not looking for it found it and were hailed as discoverers"
On maximizing chances for positive rare events
“the best way to get maximal exposure is to keep researching. Collect opportunities"
On the reason for America’s success
“America’s specialty is to take these small risks for the rest of the world, which explains this country’s disproportionate share in innovations"
On asymmetry
“Put yourself in situations where favorable consequences are much larger than unfavorable ones"
On how to use positive rare events to your advantage
know the difference between positive and negative black swans and go where there are positive ones
ex. VC, movies, sports, entertainment, media, and technology companies
take the barbell approach to risk (90% safe investments, 10% extremely risky ones)
always use leverage when possible
always be prepared
ignore large predictions
jump at any opportunity
focus on the consequences, not the probabilities
On being broadly right rather than precisely wrong
“I want to be broadly right rather than precisely wrong"
On how to approach problems
“my thinking is rooted in the belief that you cannot go from books to problems but the reverse, from problems to books"
“Genuine philosophical problems are always rooted outside philosophy and they die if these roots decay"
On resisting to be on schedule
“Missing a train is only painful if you run after it! Likewise, not matching the idea of success others expect from you is only painful if that’s what you are seeking"
“You have far more control over your life if you decide on your criterion by yourself"
On the dangers of debt
“So debt is dangerous if you have some overconfidence about the future and are Black Swan blind, which we all tend to be"
On imitating Mother Nature
Mother Nature likes redundancies (aka insurance)
Mother Nature does not like overspecialization
Mother Nature does not like anything too big
Mother Nature does not like too much connectivity and globalization
On being adaptable and prepared
“The organism with the largest number of secondary uses is the one that will gain the most from environmental randomness and epistemic opacity"
On the appeal of the physical object
“You cannot impress your neighbors with electronic files. You cannot prop up your ego with electronic files. Objects seem to have invisible but significant auxiliary functions that we are not aware of consciously, but that allow them to thrive—and on occasion, as with decorator books, the auxiliary function becomes the principal one."
On restricting our mistakes
“the idea is not to correct mistakes and eliminate randomness from social and economic life through monetary policy, subsidies, and so on. The idea is simply to let human mistakes and miscalculations remain confined, and to prevent their spreading through the system"
On people’s conviction
“people are almost always only convinced of what they already know"
On the rarer the event
“So the rarer the event, the less we know about its role—and the more we need to compensate for that deficiency with an extrapolative, generalizing theory"
On risk taking
“It is much more sound to take risks you can measure than to measure the risks you are taking"
On success
“Yet people do not realize that success consists mainly in avoiding losses, not in trying to derive profits"
very similar to Buffett and Munger’s advice