The axeman cometh

National Review, June 25, 2007 by George Gilder

The Black Swan: The Impact of the Highly Improbable, by Nassim Nicholas Taleb (Random House, 366 pp., $26.95)

NASSIM NICHOLAS TALEB is a libertarian (and a libertine), and in all likelihood he deems you a turkey. There he sits, in Paris or New York, in "a dilapidated but elegant cafe," as "unpolluted" as possible with "persons of commerce," watching you walk by. He sneers--but don't take offense: He views most of the passing world with disdain.

Maybe you are a banker, breasting a red tie and besotted with conservative beliefs. Taleb turns up his nose. Possibly you consider Vivaldi's Four Seasons a "refined" work of music. You have affronted some recherche Taleb affectation and are an aesthetic poseur. Possibly you find George Soros one of the few rich people who actually conform to Taleb's generalization about the wealthy--whom he regards as "inelegant, dull, pompous, greedy, unintellectual, selfish, and boring."

Perhaps, on a deeper level, you try to plan ahead, forgo gratifications, and save for the future, pursuing the good life of home, church, enterprise, and family. Maybe this traditional code makes it easy for you to ignore the fact that ultimately the universe is futile and random. In all cases, Taleb sees you as poultry personified.

Don't bridle, though, at Taleb's elegant scorn. He thinks turkeys have, for the most part, a good life. Pampered by attentive keepers, comfortable in their pens and sleek suits, preening over their red wattles or ties, coddled by hens and chicks, these happy gobblers feel complacent about the world ... right up to the day before Thanksgiving. Then, like so many bankers facing an Asian financial crisis or beach owners hit by a tsunami, they meet what Taleb terms their "black swan"--the out-of-the-blue disaster that confounds all their seemingly reasonable expectations.

Taleb's key insight comes from the works of David Hume, and it's known as the inductive fallacy: No number of authoritative sightings of white swans can prove the absence of black swans. No succession of good days offers any viable evidence against a bad day in turkey-land tomorrow--a Thanksgiving axe, a 9/11, a Pearl Harbor, a tornado, a financial meltdown, a nuclear explosion, a meteor.

Six years ago, Taleb published an autobiographical book called Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets. This stylish and intriguing account of his reflections as a "no nonsense" trader of derivatives became a surprise bestseller. Now that "unexpected success" (actually predicted by me when I read it) has given birth to an ungainly child, one even more disdainfully Delphic and devoted to the same misleading ideas, titled The Black Swan: The Impact of the Highly Improbable. Vaulting onto the New York Times bestseller list, it has thrust Taleb onto the stage of the media as a U.-Mass. Dean's Professor in the Sciences of Uncertainty and a belletristic cosmopolitan thinker.

Much of his book is a catalogue of the errors of logic that afflict all us turkeys as we appraise risks and make investments. He points especially to survivorship bias. Survivorship distorts any phenomenon in which only the survivors are around to be analyzed and included in the data. Taleb compares these survivor effects with the impact of harsh conditions on their victims --whether gulag inmates said to have been "hardened" by the experience, or irradiated rats that are alleged to have become "superrats" as a result. These punishments do not "harden" their victims but merely select the hardest as survivors.

Writ cosmic, survivorship bias explains the anthropic principle in science, whereby the improbability of human life is attributed to the presumed existence of zillions of failed experiments or parallel universes that preceded the one whose success we now proudly enjoy and subject to indices of probability. Taleb invokes this survivorship principle to discredit the idea that improbability is evidence of Providence. To some imponderable degree, he attributes all outcomes to randomness and luck. He castigates us turkeys, who whistle blithely past "the cemeteries of silent evidence"--where are interred the non-surviving worlds or universes or whistling turkeys.

Other temptations for the turkey include the narrative fallacy, which leads us to ascribe cause and coherence to sequences of interesting or emotionally charged events. We tell stories and listen to them, as if they captured the deeper truths of life, when almost all the most savory anecdotes are too good to be true or too rare to be representative.

The narrative fallacy converges with the ludic fallacy: We turkeys are alleged to believe that the world is a game, played by the rules. The axeman will not come because it is against the law of the land or against the law of probabilities. Even casino owners believe this fable. But Taleb demurs, with a tale of a casino he visited and advised in Vegas, which turned out to have mastered all the possible threats from within the game: counting, cheating, or outwitting the house. But the threats all came from beyond the rules--an errant tiger that attacked its trainer (Roy, of Siegfried and Roy), a disgruntled builder who threatened to blow up the place, an IRS scam by an ingenious clerk. All these black swans came near to bringing down the house.