(The New Yorker)
Nassim Nicholas Taleb is “irritated,” he told Bloomberg Television on March 31st, whenever the coronavirus pandemic
is referred to as a “black swan,” the term he coined for an unpredictable, rare, catastrophic event, in his best-selling 2007 book of that title. “The Black Swan
” was meant to explain why, in a networked world, we need to change business practices and social norms—not, as he recently told me, to provide “a cliché for any bad thing that surprises us.”
Yet, for anyone who knows his work, Taleb’s irritation may seem a little forced. His profession, he says, is “probability.” But his vocation is showing how the unpredictable is increasingly probable. If he was right about the spread of this pandemic it’s because he has been so alert to the dangers of connectivity and nonlinearity more generally, to pandemics and other chance calamities for which covid-19 is a storm signal. “I keep getting asked for a list of the next four black swans,” Taleb told me, and that misses his point entirely.
Nassim Taleb, author of The Black Swan (2007) claims that systems live in either ‘Mediocristan’ or ‘Extremistan,’ where the former is characterized by predictability and only mild randomness, and the latter by atypicality, tendency to accelerate, and lack of predictability. Taleb suggests that social scientists spend too much time thinking about Mediocristan, and not enough about Extremistan (and he has particularly harsh words for economists).
The problem is summarized with an example. If aliens came to earth and wanted to know the distribution of human weight, they could draw a sample of 50 random earthlings, and get a pretty good idea of all 7.5 billion humans. This is because human weight roughly follows a normal distribution (a bell curve). However, if the aliens wanted to know about average wealth of an earthling, they would have a much more difficult time. They could randomly sample hundreds of thousands of earthlings and think they had a good idea. Then, the next random draw could be Jeff Bezos, net worth $180 billion. Bezos’ wealth is equal to about 1.8 million times the median American family’s wealth. An individual human cannot weigh as much as 1.8 million American families. Accordingly, the disturbing takeaway is that for systems living in Extremistan, you cannot easily understand the system from random sampling, or from historical evidence. Taleb suggests that economists are guilty because rather than accepting the extent of their ignorance, they convince themselves that systems are in Mediocristan, and thus easily studied, when they are not.
It is also the problem of Black Swans. Taleb invites us to consider the story of an empirical, evidence-based turkey. For 1000 days, the turkey is getting bigger and fatter. But on the 1001st day, Thanksgiving, he is slaughtered by the farmer. Past evidence was not only useless, it was misleading. According to Taleb, Black Swans have these properties:
- The event is a surprise (to the observer).
- The event has a major effect.
- After the first recorded instance of the event, it is rationalized by hindsight, as if it could have been expected; that is, the relevant data were available but unaccounted for in risk mitigation programs. The same is true for the personal perception by individuals.
Next year, the turkey economists rationalize the ‘Thanksgiving Shock’ as an outlier, clear in hindsight. - Ryan McLaughlin | email