The Black Swan Theory

you are a chicken yes you you look around and sometimes wonder why your owner takes such good care of you at first you're not sure you're skeptical what if he sends you to the slaughterhouse you've never been there but you know very well none of your friends have ever come out of that place you remain on high alert for when that fateful day might arrive but it never does days go by and then weeks months even years you are now convinced your owner loves you more than any of these other chickens and he would never do anything bad to you each passing day is additional evidence to say that you will live for the next a thousand days go by like this a thousand beautiful days until of course the thousand and first day when the illusion of safety breaks and you end up on someone's dinner plate you should have never crossed the road now imagine how betrayed the chicken must have felt when it was being taken to that terrifying part of the farm given the thousand days worth of evidence the chicken's trust in its owner was ironically at its highest level when it was eventually slaughtered perhaps if it wasn't so foolish to believe that it was special or unique maybe it would have at least been spared the feelings of betrayal that one final day completely changed the outlook of the chicken's life that one piece of evidence outweighed the previous thousand days and it's not even a contest this is something known as a black swan a single event or observation that comes as a surprise with disproportionate consequences radically changing our outlook about something people used to think that swans could only be white until they saw a black swan which basically reshaped the way people thought about what is out there the scene nicholas to lead wrote a book called the black swan the impact of the highly improbable to study this very phenomenon and shine light on how vulnerable we are to black swans and how we are only becoming increasingly more vulnerable with each passing day in his book he talks about some fundamentals of epistemology that limit our ability to understand the black swans before they happen but first let's talk about why our modern society as technologically advanced as it is is the perfect nesting place for a black swan event let's say we're going to weigh a few thousand people and at the extreme end of that sample contains the heaviest person in the world so long as that person is subject to biological constraints like the rest of us it doesn't really matter how much he or she weighs let's say two thousand pounds now how much do you think that accounts for in the total weight of all the people we weighed the answer is probably less than half a percent it shows that even a crazy outlier like a two thousand pound person doesn't really overwhelm the average tele calls this ecosystem mediocristin to refer to how the mediocre measurements of the average person do mostly represent all measurements quite well now let's conduct the same experiment but with wealth let's gather a few people and include just one of the 3 000 or so billionaires in that list how much do you think that billionaire accounts for in the total wealth of all the people in that sample an overwhelming majority almost always close to 99 contrary to the first scenario here the outlier overwhelms everything else celeb calls this world extremists as it rewards a few people extremely well believes basically nothing for the others celeb says that the modern world is composed of circumstances that are geared towards extremist not mediocre sin because money for all intents and purposes is just a number in someone's book the vast majority of money is completely digital it's not subject to physics laws or biology to constrain it to minimal variance sure most people don't make that much money but a few people can make a lot of money similarly if you want to consider musicians most musicians don't sell that many albums but a few artists sell quite a few you can conduct the same thought experiment with book sales scientific publications shoe brands and so on point is the modern economy is a very much a winner-take-all system that rewards a very small number of people with a disproportionately large portion of the pie if it was more like the weight example we just talked about you wouldn't expect the outliers to be so wild but the fact that they really are indeed so wild just goes to show how unpredictable the environment we're living in really is the forecasts we take for granted today often fail to take into account the true nature of this unpredictability these black swan events you might be inclined to say that no these billionaires put in the work day in and day out and therefore they can enjoy the fruits of their labor indeed most of them probably worked really hard some of their innovations might later pave the way for a better future for all of us i'm not discounting that however the system is not rewarding them proportionately more importantly it's hard to say how much of their efforts are the fruits of their labor and how much of it is due to pure chance if you were to run a few simulations with extremists in type circumstances you would inevitably have a few jeff bezos like outliers we may be biased into thinking that we understand what causes bezos like outliers in our society you know the usual think out of the box start a revolutionary company work extremely hard for a few years and then smell the roses happily ever after we've all read the autobiographies we've all watched the documentaries however when was the last time you read about a person who did all of those things and failed when was the last time you saw shelves of books about people who failed chances are probably never these stories just never really quite make it there is an epistemic bias in all of this celeb says now take a look at the cemetery it is quite difficult to do so because people who fail don't seem to write memoirs and if they did those business publishers i know would not even consider giving them the courtesy of a returned phone call this is despite the fact that often advice about what not to do is more useful than what to do but that's just the economy that's just one facet of society [Music] we also don't understand the socio-political aspects take 911 for example which is certainly a black swan event after it happened you had tons of experts come out and say that they had known for years that it was about to happen well why didn't they say anything this retrospective distortion of the understanding of a problem is one of the hallmarks of a black swan event none of them really knew if they did cockpit doors would have been bulletproof long ago pocket knives would have never been allowed in the cabins and the tsa would have been invented much earlier but these things were only instituted after 911. if you were to suggest such policies in 1991 for example you would probably not be taken too seriously or would have been shown a spreadsheet that suggested airlines don't have the money for bulletproof doors but inevitably they did thankfully the likelihood of a 911 style event is much lower now than it used to be countries around the world are more prepared more vigilant however that also makes these precautions somewhat lose their relevance you've all know a ferrari in his book homo deus cites a paradox about knowledge he says knowledge that does not change behavior is useless but knowledge that changes behavior loses its relevance the more data we have and the better we understand history the faster history alters its course and the faster our knowledge becomes outdated despite the measures we have taken for a black swan event like 911 that does nothing to improve our odds against a future black swan if anything it might lure us into a false sense of security and in fact worsen our chances of coping with the impacts of the next highly improbable event we tend to convince ourselves that we understand risks once we have understood a game of dice or blackjack however trying to approximate the risks in real life with the same methods used in a closed-loop artificial game is simply oversimplification a mistake that we commit daily this teleb calls is the ludic fallacy we learn simple games and immediately conclude that the stock market works in the same way even though one of these things lives in mediocristan and the other lives and extremists if the markets were well understood do you think something like gamestop or amc would have ever been allowed to happen sure short squeezing is not a particularly new phenomenon and yet even a non-black swan event such as this one left even the smartest hedge fund managers scratching their heads and practically chasing bankruptcy this false sense of understanding makes black swans that much more dangerous there are other reasons why we are increasingly more vulnerable to black swans teleps said whereas in the past people might have been studying different kinds of literature and diving deep into a locally developed set of ideas today arguably the most read book is harry potter that's of course not to say harry potter is a bad book or anything but it goes to show that we are much less in tune with each other's ideas for better or for worse for the most part everyone is dealing with generally the same ideas that coupled with the rising complexity and reach of technology means when something fails it fails for more people than ever before the pakistani government tried to shut down youtube in pakistan it ended up shutting down youtube worldwide to website we don't understand these things that's just one way for technology to fail but it goes to show how interconnected things are and while that is often touted as a plus given sufficiently poor luck that can really spell doom for us all take coronal mass ejections as an example these are regular bursts of radiation from the sun that scientists on earth know and expect the largest coronal mass ejection ever on record is the carrington event in 1859 its effects were mostly felt by telegraph operators who had some of their equipment burnt from the sudden surge most of the world went on without a hitch on the other hand if a carrington class event were to occur today with all the grids electric cars and equipment that we now have the damages would be in the trillions of dollars and repair could take decades if at all possible and with each passing day with each little transition into an electric future we're becoming more and more vulnerable to such an event the thing is this isn't even a black swan event in 2012 the likelihood of a carrington event in the next decade was calculated to be around 12 percent and yet despite that high probability we're not particularly prepared for such an event given the esoteric nature of its risk seemingly low probability but high impact despite all the mounting evidence you'll have a very hard time convincing governments to make modifications to power grids to avoid catastrophic failures so if that's how little we care about an event that we know is bound to occur eventually imagine how unaware we are of a true black swan the chicken in the farm where it to somehow be spared by some miracle would never trust another human being ever after the betrayal it endured however few are ever so lucky meanwhile for the owner the chicken's death comes as no surprise it is a routine event and therefore no black swan the idea of a black swan is therefore relative to the knowledge one possesses hence our objective is to try and be in the position of the butcher not the butchered teleps says i worry less about advertised and sensational risks more about the vicious hidden ones of course the idea of a black swan also incorporates good things such as wildly unlikely positive outcomes of chance otherwise known as life the odds of being born are 1 in 400 trillion but to be fair i just unfollowed my own advice such a thing can't really be predicted can it for all we know and for all we don't being born is an unimaginably unlikely event that nobody really predicted so if you are alive whatever that means in the end we're actually all the black swans we've been trying to avoid the entire time ironic isn't it black swan events are by nature unforeseen and unavoidable it's almost anxiety-inducing knowing that at any moment a black swan event could happen changing the landscape of everything as we know it the history of over a thousand days tells you absolutely nothing about what is to happen next probability is everything and with brilliant you can not only learn about probability but also some of the most pressing and interesting topics in stem recently brilliant has improved the interactivity of some of their best courses with their newly redesigned mathematical fundamentals course you can learn the foundational ideas of algebra number theory and logic that come up in nearly every single topic in stem after that i'd recommend you check out their courses on probability there's a bunch of them but i honestly believe that learning to think of things in terms of probability will give you a much better perspective on life we all learn differently but i think we can all agree that the best way to truly learn and retain something is by doing it with brilliant interactive courses you can learn a new skill or topic in as little as 10 minutes brilliant has courses in math science and computer science for learners of every skill level beginner or expert if you're interested in becoming a smarter person overall visit brilliant.org aperture to start learning for free you'll also get 20 off a premium subscription which will unlock every single course brilliant has to offer as always you'll be supporting yourself and my channel at the same time [Music] [Music] you

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Id: dp1mMGaI9uw

Length: 14min 8sec (848 seconds)

Published: Fri Aug 13 2021