Just finished reading Part 1, first 133 pp., of NNT‘s Black Swan. Teleb presents his observations and conjectures on how we humans are not equipped to see and learn from the (1) rare events that have (2) significant impact and we tend to (3) ignore these events. These 3 points define the Black Swans. For me, Teleb jogs me with very interesting set of ideas, while prompting me to question what I do, how I think and interpret the world. As he presents his argument with stories, some real-life, some with names changed, some thought experiments, it’s hard for me to say that he’s scientific in his approach. At the same time, Teleb suggests that traditional scientific approaches in social sciences (e.g. economics, or looking at things like Black Swan) have too simplified models (e.g. Bell Curve) that do not reflect reality (more Mandelbrot like). From reading Part 1, I gain new perspectives and a recurring pinging in my mind to question how I think and look at the world. Worth reading.
There following are some interesting concepts from Part 1:
- Teleb says that Black Swans are invisible to most humans because we are not equipped to think about randomness, and ignore what could have happen, as it is hard to see and think about such abstractions. Experts often use simplified models like the Bell Curve erroneously to describe what we see and then derive decisions from these models. Sometimes, by luck, one among millions, could end up successful over a long period of time, but could still hit the Black Swan because it is not in model. And the Black Swan wipes out all the gains that were gotten from the previous successes.
- Teleb tells a story of casinos spending millions to manage risks with gambling and monitor cheating with sophisticated security equipment, and yet for the Mirage Casino which lost hundreds of millions of dollars because they lost Siegfried and Roy due to an unexpected tiger mawing of Roy.
- World environments are either Mediocristan (non-scalable, winner takes a bit … ) or Extremistan (scalable, winners takes almost all … )
- Humans think in 2 modes: System 1 (“intuition”, effortless, automatic, fast, opaque, …) vs System 2 (“thinking”, effortful, reasoned, slow, logical, …, self-aware)
- “Most of our mistakes in reasoning come from using System 1 when we are … thinking that we are using System 2.”
- The world is more nonlinear than we think. E.g. you play tennis every day with no signs of improvement, then after years of playing, one day, you start beating the pros.
- Don’t be like turkey. A turkey is fed every day for 1,000 day — the turkey would be thinking the 1001th day bring food again, but on that day, the turkey goes on the Thanksgiving table.
- The dead and failures are silent. We tend not to count them, when we look at statistics of those who have succeeded, and then start attribute what led to these people’s success are due to what they did rather than randomness…
- To deal with these biases and innate handicaps, Teleb suggests that we look at reality, avoid interpretation based on our simple models of the world, be always skeptical, and keep an open-mind. For, to think out of the box, especially to catch a Black Swan, you cannot be stuck inside the box, where Black Swans could not be seen.
Copyright (c) 2008 by Waiming Mok