E-mail a friendNassim Nicholas Taleb
airdate June 12, 2007
A former derivatives trader and researcher, Nassim Nicholas Taleb specializes in the risks of unpredicted rare events. His book, Fooled by Randomness, became a cult 'must read' on Wall Street and has been published in 19 languages. Taleb has a Ph.D. from the University of Paris and is the founder of Empirica LLC, a trading firm and risk research lab. On break as Dean's Professor in the Sciences of Uncertainty at the University of Massachusetts at Amherst, his latest book is The Black Swan.
Nassim Nicholas Taleb
Tavis: Nassim Nicholas Taleb is a professor at the University of Massachusetts and author of the international bestseller "Fooled by Randomness." His latest book once again takes a unique look at the random and the improbable, and is, once again, on the "New York Times" bestseller list.The book is called "The Black Swan: The Impact of the Highly Improbable." Professor, nice to have you on the program.
Nassim Nicholas Taleb: Please don't call me professor.I was a trader before I became an academic.
Tavis: A trader before then?
Taleb: Yeah, and what happened is my friends - my trader friends, to make fun of me, called me professor.(Laughter)So call me Nassim.
Tavis: I will call you Nassim.When I saw this book, "The Black Swan," as I suspect other people, when they heard me say the book is called "The Black Swan" were like "Did he just say 'The Black Swan?' There's no such thing as a black swan.We all know swans are white."
Taleb: Yeah, that was what was believed in Europe and the old world before the discovery of Australia.And effectively the discovery of Australia showed that there are plenty of black swans out there.We didn't know about them.That's the exception, okay? And we had no reason to believe that they existed.And my whole idea here is the power of that exception, okay?Except that my black swan is not really a bird.
It's an event.So it's not like the exception of finding a black bird when we have never seen that bird before; all you've seen before was white.It's the fact that exception carries massive consequences.
Tavis: Tell me more about that latter point.
Taleb: Much of everything - and that's the idea I hold here - much of everything in history is completely dominated by the exception of the black swan.History, socio-economic life, our lives, our personal lives, but we don't know it.To take an example, take the book business, okay?You've had years, in 1997, where five books out of 10,000 literary fiction books in the English language, five books represented 70 percent of the sales.
So these exceptions, okay, play a large role, okay?Likewise for companies, okay?Look at Google compared to how many Internet companies out there, all right?Look at Google is getting all the shekels, okay?Nobody else is getting anything.They're getting the crumbs, okay?So we're dominated by that exception.
And the other problem is that they're not predictable, you see?You couldn't have predicted "Harry Potter," okay?It's not predictable.You couldn't have predicted the first war, okay?The first great war, and the second - the volume II is what happened in the second war - continuation.So these events being unpredictable, all right, and representing the bulk of the action, okay, makes our world much more difficult, okay, than what we have in our minds.
Tavis: To your point about the fact that it makes the world much more difficult, I could read your take on improbability, that whole black swan thing, in one of two different ways - at least one of two different ways.On the one hand, the fact that these events, these moments, these individuals are, to some degree, unpredictable says to me that on any given day, I may hit the Lotto.
Not literally, but figuratively.That one day, my moment may come.I may be one of those rare exceptions in the world.But given the odds, given your point that our world is run by exception, the chances are greater that I'm going to be one of the ordinary people just trying to do my part every day, trying to make a living, trying to keep my head above ground, which isn't the most inspiring thing if you're telling me that the exceptions -
Taleb: You're perfectly right.There's some businesses, there's some domains, and here I have my chapter on what I call - it has chasing black swans, if you know, it has an existential effect.Like you're looking for that glory, okay?Your dream is to get to that glory, and it's the route to get there, the process, that can be beautiful.
To give you - again, there's so many people who wasted all their lives looking for glory.Think in research, okay?Hundreds of thousands of researchers find nothing, okay?And nobody even says hello to them, because they're considered to be failures.But that's necessary, okay, if you want to find a drug, okay?
Tavis: You gotta research.
Taleb: You're going to have a lot of people looking, and one of them is going to be lucky.But you're going to have - so efforts are necessary but highly insufficient, okay?Now, but these people - but having your mind out there looking for that glory, okay, prevents you, okay, from worrying about the small - sweating the small stuff.So if the coffee is not hot, if the chair is not comfortable, you don't care anymore.
Your mind - so there's an existential thing with the black swan in my mind.But another thing I would like to insist on is that there's some professions that are sort of free of the black swan.If you want to become a dentist, it may not be the most - I'm sure some people may disagree with me, but it's not the most entertaining occupation, all right?Being a dentist.But they don't have that problem.
Tavis: The folk who sit in the chair agree with you.(Laughter)
Taleb: So the way I split it is between two professions.One I call Mediocristan; it's dominated by the ordinary.If you're a baker, you're in that business.But if you're an actor, if you're a writer, if you're in the media business, if you're a researcher, if you're an academic, okay?Everything's determined by the exception.Almost everything, particularly in academia, okay?
One person gets a Nobel and hundreds of thousands are just out there, not getting any reward.So in these professions, you've got to have a different kind of drive.You've got to - maybe you're not going to be as materialistic in other professions, although the goal may be materialistic or maybe just glory or maybe just self-satisfaction.It's a different mindset, to strive for a big, big, big, big event.
Tavis: I'm still struggling with this.Trying to find the reason to encourage people to get up and do whatever it is that they do every day.
Taleb: The way we humans work, there's no - the engine that drives us is not necessarily what we tell ourselves, which is not a natural impulse.Someone who's going to be a writer, okay, has natural impulse.You don't tell someone, "Be a writer."They're going to naturally be, and would want to write, and they're probably going to be blinded by hope.
They're going to live probably in what I call the antechamber of success, okay?Waiting in the corridor of glory.But maybe that's how they're cut; they can't do it otherwise.You can't turn him into a bank lending officer.You can't turn a writer into a dentist.You may try, I don't know what effect that would - so you have some professions that are populated with people who had dreams and are just cut to do that profession.
That's what makes them tick, okay?And even the unhappiness is part of the package.You see?We're not out there to seek hedonic pleasure or happiness; we're out there to seek some kind of satisfaction from doing what we feel we need to do.So even if it's fraught with difficulty, even if it's not paved with gold, you see?
Tavis: So then the universal message here about the impact of improbability on our lives is what?
Taleb: Well here what I do with the book is I actually provide a map, okay?I say, let's understand reality we have in our heads, and reality out there.And I look at just a regular Joe, a regular person on his or her daily life, and what you see in people's lives is some kind of misunderstanding of actual reality, which is (unintelligible).
There's some areas, say stock market, socio-economic world, that are dominated by the black swans.And effectively, there's no specialist in these areas.And we're taken for a ride by the specialist, okay, who try to convince us that they're specialists.
Tavis: Indeed.
Taleb: We cannot predict socio-economic variables, particularly long-dated ones. But they want to convince you to do that.So in a book I show, it's a map.I say okay, if someone is giving you advice about the stock market, okay, don't take advice from him or her if they're dressed and employed by a firm. Take advice from a cab driver, for two reasons.
Number one, the cab driver may be a little more accurate in his prediction of stock market or economic variables than an economist or a stock analyst.And the other reason that's much more important is that the cab driver - you're not going to take too much risks listening to a cab driver.You're going to get the same therapy when you receive advice because lower anxiety because they've talked to you about the future, but at the same time you're not going to take too much risk.
And that is one of the ideas of the book.The second one is also how to sort of embrace serendipity in your daily life, and to resist the impulse we have to sort of not - when you hit on a black swan, typically most people hit on it by accident, okay?Because a lot of researchers will be looking for a cure for headaches or a bad sense of humor.
You could be looking for that cure and hit on a cure for something else, all right?They say oh, that's not what I'm looking for, and reject it outright.So a lot of - so you have to have an open mind to embrace serendipity and take the fruits of these black swans that fall in your lap and that typically, people do not exploit properly.
Tavis: Is it your sense that each of us over the course of our lives is exposed to any number of black swans?
Taleb: Yeah, (unintelligible) black swans, and a lot of people don't know how to use them.So what I'm - for example, this is a sort of a map going from the very complex by saying okay, try to avoid going to war because war is unpredictable, all right?But go into street fights - street fights are very predictable, all right?
So we're sort of wired genetically, okay, to like to get into street fights, and we're very good predictors of the balance of power and the outcome.But we're not good predictors of wars, but we don't know it, okay?
Tavis: What do you hold fast?What do you have faith in?What do you believe in, given your profound belief in the black swan formulation, the notion of improbability?
Taleb: I believe that I don't understand the world myself, okay?But that I do best when I know that because then I know what is it that I understand better.
Tavis: You know what you don't know.
Taleb: I know what I don't know, and most people focus on what they know, and I try to focus on what I don't know, and it requires mental effort.Along with it came this idea that we should resist making theories because this whole idea is not to be (unintelligible).Typically, we are the agents of our own troubles, because we tend to make theories, okay, when we should learn to withhold judgment. We should learn to say, "I don't know."That's my main idea.
Tavis: That advice notwithstanding, I know and I predict boldly this book will be on the list for a little while.(Laughter)
Taleb: Thank you very much.
Tavis: It's called "The Black Swan: The Impact of the Highly Improbable" by Nassim Nicholas Taleb.Nice to have you on the program.
Taleb: Thank you very much.
Tavis: Enjoyed talking to you.
Taleb: Thanks a lot.Thank you, thanks.
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