Black Swan
Failing to recognize the impact of black swans is summed up in the expression: "Never mistake the absence of evidence for evidence of absence"
- ex. think of the turkey who got fed well every day until getting his head chopped off. He made a miscalculation of the existence of black swan events because he mistook the absense of evidence (ie. that he would die) as the evidence of absence (ie. I'm not going to die, because there's no reason to think that will happen)
Attributes of Black Swan Event
- it is an extreme outlier, meaning that nothing in the past could have reasonably lead to a prediction that this event could have happened
- it carries an extreme impact
- humans tend to retroactively invent a reasonable explanation for why this event occurred in the first place
The occurrence of a highly improbable event is equivalent to the non occurrence of a highly probable event. in both cases, something that should have happened by probability did not happen.
Why we still fail to see black swans
The reason we may fail to spot black swans is because we make a naive observation of the past as something definitive or representative of the future. a turkey will experience more than a thousand consecutive Happy days, and by induction, he will believe that this will just continue on in the future. of course, we know that turkeys at some point we'll be eaten humans are wired in such a way that when a Black swan event happens, we start looking at the possibility of other outlier events happening locally. when 2008 happens, everyone starts to look at other factors that may cause another stock market crash, there by ignoring other areas of life. It's almost like the spotlight has been shone on that one event, so everyone's attention is on it.it is at this point that humans go into analysis mode, and look for explanations as to why something happened, and try to explain why or why not something else will happen in the future
Timescale of Black Swans
Black swan events happen over varying durations. earthquakes last minutes, 911 lasted hours, technological implementations may take decades, but they are no less Black swan events
in general positive Black swan events take time to show their effect, while negative ones happen very quickly (it is much easier and quicker to destroy than it is to build)
humans tend to "tunnel", that is, focus on a few well-defined sources of uncertainty, on two specific a list of black swans (at the expense of others that do not easily come to mind)
Narrative fallacy and confirmation bias are internal mechanisms causing blindness to black swans.
We learn from repetition at the expense of events that have not happened before
- events that are nonrepeatable (eg 9/11) are ignored before their occurrence, and overestimated afterward
Our misunderstanding of the black swan can be attributed to system 1 (a focus on narratives and the sensational), which imposes on us a wrong map of the likelihood of events
The sources of Black Swans have multiplied far above levels in the past
- in the past it was just: newly encountered wild animals, new enemies, and abrupt weather changes
A set of conclusions is potentially undone once any of its fundamental postulates is disproved. In this case, the observation of a single black swan would be the undoing of the logic of any system of thought, as well as any reasoning that followed from that underlying logic.
First, it is an outlier, as it lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility. Second, it carries an extreme 'impact'. Third, in spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable.
A small number of Black Swans explains almost everything in our world, from the success of ideas and religions, to the dynamics of historical events, to elements of our own personal lives.
- ex. rise of the Internet, the personal computer, World War I, the dissolution of the Soviet Union, and the September 11, 2001 attacks
- the COVID-19 pandemic is not a black swan, but is considered to be a white swan; such an event has a major effect, but is compatible with statistical properties.
Predictions about graphs that move are often black swan prone
- ex. stock market, psychiatrists, college admissions officers, judges
Humans are hard-wired to learn specifics when they should be focussed on generalities: we concentrate on things we already know and time and time again we fail to take into consideration what we don't know.we therefore are too vulnerable to the impulse to simplify, narrate, and categorize
- when we think of a black swan event like 9/11, our lessons are usually along the lines of "this is what we must do to prevent islamic terrorist attacks". the general lesson would have been "some events stabd largely outside the realm of predictable.
- consider the french maginot line in ww2. they learned this strategy from wwi because it worked well, but when specific details changed in ww2, it no longer worked. the french were too focused on the specifics
Black swan events make us feel that we almost predicted them, because they are retroactively explainable.
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