"Reality is far more vicious than Russian roulette. First, it delivers the fatal bullet rather infrequently, like a revolver that would have hundreds, even thousands, of chambers instead of six. After a few dozen tries, one forgets about the existence of a bullet, under numbing false sense of security," says Nassim Nicholas Taleb. He refers to this as the black swan problem.
Fooled by Randomness is a book about mistaking luck for skill, a mistake Taleb sees most prevalent in journalism and the world of markets. At the root, "risk detection and risk-avoidance are not mediated in the 'thinking' part of the brain but largely in the emotional one." "The consequences are not trivial: It means that rational thinking has little, very little, to do with risk avoidance. Much of what rational thinking seems to do is rationalize one's actions by fitting some logic to them."
Yet, "[p]eople fail to learn that their emotional reactions to past experiences (positive or negative) were short-lived." "[T]hey continuously retain the bias of thinking that the purchase of an object will bring long-lasting, possibly permanent, happiness or that a setback will cause severe and prolonged distress (when in the past similar setbacks did not affect them for very long and the joy of the purchase was short-lived)."
He paraphrases a remark by Einstein: "[C]ommon sense is nothing but a collection of misperceptions acquired by the age eighteen."
Taleb also redefines a common misperception of the word 'mistake': "A mistake is not something to be determined after the fact, but in the light of the information until that point."
This point ties succinctly with the concept of creative destruction which embraces the role of failure in development. Mistakes need not be avoided, but learned from. But, many environments are not conducive to such a framework. Many of these frameworks have been engrained in society and social relationships for years. Taleb explores why "bad traders have a short- and medium-term survival advantage over good traders," by tying the world of markets to naive evolutionary theories.
"[M]any amateurs believe that plants and animals reproduce on a one-way route toward perfection. Translating the idea to social terms, they believe that companies and organizations are, thanks to competition... irreversibly heading toward betterment." This is simply not true.
Taleb offers multiple reasons. I will follow each with a few of my own thoughts.
In Taleb's mathematical verse: "Just as an animal could have survived because its sample path was lucky, the "best" operators in a given business can come from a subset of operators who survived because of over-fitness to a sample path--a sample path that was free of the evolutionary rare event." "[E]volution means fitness to one and only one time series, not the average of all possible environments."
Distinguishing between signal and noise is widespread, though, journalism receives the largest swath of Taleb's relentless skepticism: "[J]ournalism may be the greatest plague we face today -- as the world becomes more and more complicated and our minds are trained for more and more simplification."
This effect of this large-scale compression -- going from the particular to the general -- "is the reduction in the degree of detected randomness." Journalism, through induction, favors the palatable over the counter-intuitive. In sum: "[M]ost poetic sounding adages are plain wrong."
From journalism to winning streaks, "if someone performed better than the crowd in the past, there is a presumption of his ability to do better in the future." But this is a weak presumption. It depends on two factors: "The randomness content of his profession and the number of monkeys in operation."
While Taleb doesn't offer any advice on which particular profession to choose, he does offer a suggestion. Don't shoot for a profession where you only like the way people live at the top. Consider the lifestyle of the average person, there are many more of them.
The idea of alternative histories across several disciplines all seem to converge on the same concept of risk and uncertainty: "certainty is something that is likely to take place across the highest number of different alternative histories; uncertainty concerns events that should take place in the lowest number of them." Taleb mentions examples in philosophy, physics and economics.
However certain this convergence may appear, one still has to stay alert. Profits and losses are never guaranteed. "The frequency or probability of [a] loss, in and by itself, is totally irrelevant; it needs to be judged in connection with the magnitude of the outcome."