In The Black Swan, author Nassim Taleb describes our follies in prediction and error rate and our vast misunderstanding of prediction in general. We naively assume that tomorrow will be a lot like today forgetting that today is yesterday’s tomorrow. He lays out a few core concepts, but the guiding principle is that there are two worlds we live in. In Medioscristan worlds, “particular events don’t contribute much individually—only collectively.” On the other hand, in Extremistan worlds, “inequalities are such that one single observation can disproportionately impact the aggregate, or the total.” Book sales, terrorist attacks, earthquakes, stock market crashes — those are all Extremistan events, but we largely treat them as Mediocristan.
I took a lot of notes in this one, but I’ll highlight the central idea as Taleb explains it:
Indeed, the notion of asymmetric outcomes is the central idea of this book: I will never get to know the unknown since, by definition, it is unknown. However, I can always guess how it might affect me, and I should base my decisions around that…We can have a clear idea of the consequences of an event, even if we do not know how likely it is to occur…This idea that in order to make a decision you need to focus on the consequences (which you can know) rather than the probability (which you can’t know) is the central idea of uncertainty. p. 210-211
This has been on my bookshelf for quite awhile, and I’m sad I took so long to read it.