“Consider a turkey that is fed every day. Every single feeding will firm up the bird’s belief that it is the general rule of life to be fed every day by friendly members of the human race “looking out for its best interests,” as a politician would say. On the afternoon of the Wednesday before Thanksgiving, something unexpected will happen to the turkey. It will incur a revision of belief.”
Nassim Nicholas Taleb
From the turkey’s point of view, there’s no reason to believe that Thanksgiving day would be any different from the others. All of its limited past experience suggest that being well fed is a routine part of its day. But a single unforeseen act by the butcher changes its life.
I couldn’t help but notice the similarities between this metaphor and our real life experiences.
This example is from the book “ The Black Swan “ by Nassim Nicholas Taleb, a former trader, professor and author of several books on uncertainty,randomness and probability.
I mentioned his work earlier in the post “ 7 Awesome Books that make you go ” A-Ha!! “
This post is a summary of the 3 big ideas I learned from this thought provoking book .
A Black Swan Event
Nassim Taleb’s main focus, throughout the book, is on the impact of Black Swan Events (rare, unpredictable and extreme events ) and our underestimation of their probability of occurrence.
One important characteristic he attributes to a Black Swan event is our tendency to be able to explain them after the fact, but not before. We apply new information to understand past events, which makes sense right now but not before the event happened. Looking back , we comfortably remember only those facts that suit our explanation and ignore the rest.
Examples include the rise of the Internet, World War I and the 9/11 attacks among others.
A highly anticipated event that doesn’t happen is also a Black Swan. Also, the impact of positive black swans (good events) build up over time ( Ex: Book sales ) but negative ones have immediate consequences (Ex : Unforeseen Recession ). We tend to ignore these events before they occur but overestimate their impact after they occur at least once.
Don’t Predict Based on the Past
In any complex environment with a large number of participants ( Macro economics, Financial Markets, Politics etc ), past information cannot be used to predict the future.
But we give importance to expert’s predictions, even in fields where such expertise is not possible. Basically, guessing and predicting are the same thing in such areas. Most experts attribute their successful predictions to their skill set and failures to external factors. Very few acknowledge the role of luck and uncertainty involved in predictions.
To understand whether the success of any expert’s prediction is due to actual expertise or luck/randomness, study the traits of failed predictions. Did they fail due to lack of expertise? Or do they have the same aptitude/logic as the successful ones?
Similarly in personal life, We fail to learn from our past mistakes in predicting our future. Just count all the major events or technological advances that occurred in your life time. Now, compare the outcomes to what was expected before they occurred. How many of these events could we correctly predict?
Even after we realize this, we learn the wrong lessons i.e after the 9/11 attacks, we didn’t learn that it’s not possible to predict some events. We only improved our security protocols to prevent similar attacks.
“We overestimate what we know and underestimate uncertainty.”
Nassim Nicholas Taleb
Scalable vs Non Scalable Work
A work is scalable when you don’t have to put extra effort or time for additional output/income. Examples are fields that require intellectual work ( writing, singing, art etc ). Such fields have the potential for black swan events. Also, in these fields, you see few disproportionate successes and many failures ( Ex : best selling writers vs aspiring ones ).
Non scalable work, where the output depends on the amount of effort is mostly predictable ( regular job, non intellectual work etc ) and has no exposure to black swan events, positive or negative.
Successful people concentrate on concepts and ideas (scalable parts) and the actual laborious work in marketing, sales etc (less scalable parts) are outsourced to others.
Summary
Because a black swan is a rare, unpredictable and high impact event, we must focus our efforts on being able to withstand its effects, rather than trying to predict based on our knowledge . Accepting that “we don’t know many things” is better than creating a narrative based on “ what we already know “.
A few actionables suggested to help us be robust against black swan events are
- In any major life decision, do not rely on predictions. Its ok though, in smaller ones which have little to no impact.
- Always look for disconfirming evidence – evidence that proves you wrong.
- Do not form precise, close – minded opinions on any subject. Be open to a general view and make allowance for errors of judgment.
- Look at facts without applying preconceived opinions or narrations.
- Be aggressive when you come across an opportunity with positive black swan and be conservative when faced with a possible negative black swan.
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