Nassim Taleb on black swans & fat tails
Taleb defines a Black Swan as a rare, consequential event that depends on what the observer knows, and separates Mediocristan, where no single observation matters much, from Extremistan, where one observation can dominate the total. Because fat tails can hide behind long quiet periods and make sample statistics unreliable, he says we should assume them by default, stop trying to forecast rare events, and instead measure and manage our exposure to them.
15 points · 5 appearances · 2008–2024
How the view evolved
History jumps, it doesn't crawl → Assume fat tails unless you can rule them out
In 2008 he describes Mediocristan and Extremistan as two kinds of history: mostly quiet, then abrupt jumps. By 2024 it has become an asymmetry argument: a thin-tailed model can be broken by one outlier but a fat-tailed model cannot, so fat tails should be the default unless you can rule them out.
Forecasting works in Mediocristan, fails in Extremistan → Stop predicting; fragility is measurable
In 2008 he maps where forecasting works (Mediocristan) and where it fails (anything social, Extremistan). By 2013 he draws the practical conclusion: stop trying to predict rare events and measure fragility instead, because fragility can be measured.
Up next
2013–2020 · changed view
“Hammurabi's rule, and it says the following: if the architect builds a building and the building collapses and kills the owner of the building, what should happen to the architect? It should be put to death. I mean, it was Babylon 3,800 years ago, so they were not, you know -- didn't have a very sophisticated legal code, all right. And then of course if it kills the firstborn, the firstborn son of the architect is put to death. So they're really looking for symmetry. Now what was the idea of Hammurabi's code? It was not eye for eye -- eye for eye limiting damages, you know, and making things balanced. No, it was that you cannot walk away from risks you've created for others. You should own your risks. That's the idea of Hammurabi's code.”
2008–2024 · changed view
“Problem of most theorists, problem for universities, is you go from theory to practice, the degrees of freedom from theories of practice are considerably narrow, small. The reverse is monstrous. So let me give you this for: if I leave in a small piece of ice cube on the floor, okay, you can easily get someone in second year physics students to write the equation to tell you what's going, hard to predict, how that ice cube will melt. Okay, it's a very simple thing, the second rate student could do it. All right, right, know someone from Boston that is can do it. Okay, so the, yeah, so you can predict. So, but now, conditional on seeing water on the floor, is it easy to reverse-engineer the ice cube? No. You have an infinity of ice cubes.”
2008–2024
“The whole idea of the Black Swan, everything I've been telling everyone, every person I meet, is to bet on disruption, on unforeseen, to not be harmed by silent risk. Okay, that's the idea. The first thing is don't be harmed by it.”
2013–2023 · changed view
“Please mishandle. So something that is fragile, if you map it properly mathematically, you'd realize that the fragile is what does not like disorder. It doesn't want mishandling, it doesn't want volatility, it wants peace and predictability. So the opposite of that would be something that love volatility.”