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Transcript of Black swan
problem of our tendency to view historical evidence with a filter that selects “the rosier part of the process” (Selection Bias) while ignoring the parts of the process that don’t fit our preconceptions, or at least not recognizing or forgetting that there is a part of the historical process that is inaccessible to us and therefore, silent.
"praying protects you from drowning."
“Where were the pictures of those who prayed, then drowned?”
Silent evidence pervades everything connected to the notion of history.
History is any succession of events seen with the effect of posteriority.
Numerous studies of millionaires aimed at figuring out the skills required for success follows the following methodology.
They look at what those people have in common:
and so on
This statement is actually
researchers confirm that gamblers have lucky beginnings.
"illusion of stability". We don't appreciate the luck which has allowed us to survive. We don't recall all those incidents when we nearly died or lose. This luck encourages us to take blind risks, unaware of the variability in the possible outcomes.
Chapter 8: Silent Evidence
Chapter 9 Ludic Fallacy
-successful business man
-motto is "Finding who the sucker is."
-master of schedule and predicable as a clock
-former engineer now a actuary of insurance company
-clear line between working time and leisure time
A question is asked
Dr John: Trivial question. One half, of course, since you are assuming 50 percent odds for each and independence between draws.
Fat Tony: I'd say no more than 1 percent, of course.
Reason : The coin gotta be loaded. It can't be a fair game.
Now, who would you choose to be the mayor of New York City? Tony or John?
-Ludic comes from ludus, Latin for games
-The behavior of Dr. John is ludic fallacy
-The author Taleb: The attributes of the uncertainty we face in real life have very little connection to the sterilized ones we encounter in exams or games.
Gambling vs Reality
-Gambling was sterilized and domesticated uncertainty
- you know the rules, you can calculate the odds
- the type of uncertainty belongs to Mediocristan.
-odds are not known
-need to be discovered and sources of uncertainty are not defined
Reasons Why they are different
1. It is impossible to possess all the information
2. Even very small unknown variation in the data could have a huge impact - butterfly effect.
3. Theories based on empirical data are flawed, they cannot predict events that are never happened before
Example of Job interview
-Therefore, We can not use theories in exams or gambling for real life
Example of Casino
-focus too much on monitoring and catch cheaters
-real big losses occurred are not related to gambling
-will be discussed in detail later
Example of job interview:发
-using statistics and utility function to evaluate a job interview
-ignore many other variable factors
Q: But Dr. John said 50 percent.
Fat Tony (whispering in ear): I know these guys with the nerd examples from the bank days. They think way too slow. And they are too commoditized. You can take them for a ride.
Concentration of success in the world of Extrimistan: a very small number of winners claim a large share of the pie.
e.g. Patero principle or the 80-20 rule: 20% of population control 80% of wealth.
Modern reality rarely gives us the privilege of a satisfying, linear, positive progression, where input may no longer produce continuous sensational or visible output. Process and result may not be closely connected as well.
Black Swan hunters engaged in concentrated business may spend most of their time waiting for the big day that usually never comes. They do not earn big bucks or attract high respect. They are paid in a currency other than material success: hope.
Opposite to Black Swan (some outlier unexpected to happen)---hope is the unexpected event that you very badly want to happen. For Drogo, it is the the exciting big battle with the Tartars.
Asymmetry in consequences —either positive or negative. For Drogo, it is 35 years spent waiting in the antechamber of hope for just a few randomly distributed hours of glory—which he ended up missing.
So be careful what you wish for, what is a life worth living, one may have been happier before the Black Swan event happened than after.
Drogo can stick to his hope for a lifelong time partly because he had the advantage of an association with peers and the avoidance of social contact with others outside the community---peer validation.
We are local animals, interested in our immediate neighborhood—even if people far away consider us total idiots. We need others far more than we realize, particularly for dignity and respect.
The main takeaway message is: if you engage in a Black Swan-dependent activity, it is better to be part of a group.
How can we sustain hope?--- When You Need the Bastiani Fortress?
Mother Nature destined us to derive enjoyment from a steady flow of pleasant, small, but frequent, rewards.
reasons: saturation, law of diminishing returns
Therefore our happiness depends far more on the number of instances of positive feelings, than on their intensity when they hit. In contrast, it is better to lump all your pain into a brief period rather than have it spread out over a longer one.
While it is possible to transcend the asymmetry of pains and joys, escape the hedonic deficit, set ourselves outside the game— and live with hope.
How can hope help us?
---Taleb’s favorite book
At the end of the novel we see Drogo dying in a roadside inn (because he was ill and dismissed) as the event for which he has waited his entire life takes place. He has missed it.
The novel tells the story of a young officer, Giovanni Drogo, and his life spent guarding the Bastiani Fortress, an old, unmaintained border fortress.
The entire atmosphere of the fort is one of anticipation. Drogo spends the rest of his life extending his stay, delaying the beginning of his life in the city—with 35 years of pure hope.
Ch7 Living In The Antechamber Of Hope
A quick question: which do you prefer?
Why we need hope?
What is hope?
-Risk dollars to win pennies---expect black swam will not happen
-Risk pennies to win dollars---expect black swam to happen
Trick the brain to escape from short term losses by focusing on longer haul!!!
weaken the memory
make people lose themselves
Frequent small losses.....
-Evolution is a series of flukes
-Biased sample selection
-Invisible risk of Black Swam
People become successful by accident doesn't mean that we should continue take the same amount of risk!!!
Risk of losing money...
-The risk in gambling is irrelevant to gambling itself...
-Performer attacked by tiger
-Contractor attempts to dynamite casino
-Employee acts improperly
-Daughter being kidnapped
-Statistics works when odds are visible
-Odds occurred in gambling are invisible
WE CANNOT MEASURE RISK IN REALITY!!!
"A rare bird in the lands and very much like a black swan" Juvenal (early 1st century AD).
Coined later in English as a statement of impossibility.
Willem de Vlamingh discovered black swans in Western Australia, early 17th century.
The term 'Black Swan' morphed in meaning.
John Stuart Mill develops Falsifiability and explains it using 'Black Swans'.
Despite this, Taleb takes a different approach.
Roman Poet Juvenal
Accurate discoveries of black swans in WA
based on, concerned with, or verifiable by observation or experience rather than theory or pure logic.
Taleb's 'Black Swan'
Something not regularly expected because it is unlikely or it never happened before.
Bias that arise
is a tendency to search for or interpret information in a way that confirms one's preconceptions, leading to statistical errors.
is a statistical bias in which there is an error in choosing the individuals or groups to take part in a scientific study
Something that carries weight in reaction and interpretation
Something that people tend to attribute explanations to in hindsight and hence conceive it's predictability.
(well, not really)
Chapter 7: Living in the Antechamber of Hope
Dilemma for those who pursue and hope for Black Swans.
Income of $100,000/year for 10 years OR $1,000,000 once in 10 years?
"Non-linearities are ubiquitous in life" Taleb.
Chapter 8: Giacomo Casanova’s Unfailing Luck
Silent Evidence - what we ignore all too often.
Most talented writers will never be heard of, meaning we discount their skill in writing.
For those that make it, we give too much weight to their skill - disproportionately so.
Chapter 9: The Ludic Fallacy or the Uncertainty of the Nerd
Ludic Fallacy - classroom reasoning applied to the real world.
Inside the box thinkers vs. outside the box thinkers.