July 2, 2019

📚 Book Notes: The Black Swan - The Impact of the Highly Improbable

Here are my notes from The Black Swan - The Impact of the Highly Improbable:

Bits

1. A private library is not an ego-boosting appendage but a research tool. Read books are far less valuable than unread ones. The library should contain as much of what you don’t know as your financial means, mortgage rates and the currently tight real-estate market allows you to put there.
2. You can afford to be compassionate, lax, and courteous if, once in a while, when it is least expected of you, but completely justified, you sue someone, or savage an enemy, just to show that you can walk the walk.
3. Everybody knows that you need more prevention than treatment, but few reward acts of prevention. It is much easier to sell “Look what I did for you” than “Look what I avoided for you.”
4. History is opaque. You see what comes out, not the script that produces events, the generator of history. There is a fundamental incompleteness in your grasp of such events, since you do not see what’s inside the box, how the mechanisms work.
5. There is more money in designing a shoe than in actually making it: Nike, Dell, and Boeing can get paid for just thinking, organizing, and leveraging their know-how and ideas while subcontracted factories in developing countries do the grunt work and engineers in cultured and mathematical states do the noncreative technical grind.
6. Physics has been successful, but it is a narrow field of hard science in which we have been successful, and people tend to generalize that success to all science. It would be preferable if we were better at understanding cancer or the (highly nonlinear) weather than the origin of the universe.
7. If you survive until tomorrow, it could mean that either a) you are more likely to be immortal or b) that you are closer to death.
8. We grossly overestimate the length of the effect of misfortune on our lives. You think that the loss of your fortune or current position will be devastating, but you are probably wrong. More likely, you will adapt to anything, as you probably did after past misfortunes.
9. An ad hominem attack against an intellectual, not against an idea, is highly flattering. It indicates that the person does not have anything intelligent to say about your message.
10. Missing a train is only painful if you run after it! Likewise, not matching the idea of success others expect from you is only painful if that’s what you are seeking.

Bytes

1. There is no way to derive profits from traded securities since these instruments have automatically incorporated all the available information. Public information can therefore be useless, particularly to a businessman, since prices can already “include” all such information, and news shared with millions gives you no real advantage. Odds are that one or more of the hundreds of millions of other readers of such information will already have bought the security, thus pushing up the price.
2. Consider a turkey that is fed every day. Every single feeding will firm up the bird’s belief that it is the general rule of life to be fed every day by friendly members of the human race “looking out for its best interests,” as a politician would say. On the afternoon of the Wednesday before Thanksgiving, something unexpected will happen to the turkey. It will incur a revision of belief.
   From the standpoint of the turkey, the nonfeeding of the one thousand and first day is a Black Swan. For the butcher, it is not, since its occurrence is not unexpected. So you can see here that the Black Swan is a sucker’s problem. In other words, it occurs relative to your expectation.
3. One Diagoras, a nonbeliever in the gods, was shown painted tablets bearing the portraits of some worshippers who prayed, then survived a subsequent shipwreck. The implication was that praying protects you from drowning. Diagoras asked, “Where were the pictures of those who prayed, then drowned?”
   The drowned worshippers, being dead, would have a lot of trouble advertising their experiences from the bottom of the sea. This can fool the casual observer into believing in miracles.
4. Numerous studies of millionaires aimed at figuring out the skills required for hotshotness follow the following methodology. They take a population of hotshots, those with big titles and big jobs, and study their attributes. They look at what those big guns have in common: courage, risk taking, optimism, and so on, and infer that these traits, most notably risk taking, help you to become successful. You would also probably get the same impression if you read CEOs’ ghostwritten autobiographies or attended their presentations to fawning MBA students.
   Now take a look at the cemetery. It is quite difficult to do so because people who fail do not 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 (as to returned e-mail, fuhgedit). Readers would not pay $26.95 for a story of failure, even if you convinced them that it had more useful tricks than a story of success.* The entire notion of biography is grounded in the arbitrary ascription of a causal relation between specified traits and subsequent events. Now consider the cemetery. The graveyard of failed persons will be full of people who shared the following traits: courage, risk taking, optimism, et cetera. Just like the population of millionaires. There may be some differences in skills, but what truly separates the two is for the most part a single factor: luck. Plain luck.
5. Our human race is affected by a chronic underestimation of the possibility of the future straying from the course initially envisioned (in addition to other biases that sometimes exert a compounding effect). To take an obvious example, think about how many people divorce. Almost all of them are acquainted with the statistic that between one-third and one-half of all marriages fail, something the parties involved did not forecast while tying the knot. Of course, "not us," because "we get along so well" (as if others tying the knot got along poorly).
6. On September 11, 2001, around twenty-five hundred people were directly killed by bin Laden’s group in the Twin Towers of the World Trade Center. Their families benefited from the support of all manner of agencies and charities, as they should. But, according to researchers, during the remaining three months of the year, close to one thousand people died as silent victims of the terrorists. How? Those who were afraid of flying and switched to driving ran an increased risk of death. There was evidence of an increase of casualties on the road during that period; the road is considerably more lethal than the skies. These families got no support—they did not even know that their loved ones were also the victims of bin Laden.
7. The problem is that our ideas are sticky: once we produce a theory, we are not likely to change our minds—so those who delay developing their theories are better off. When you develop your opinions on the basis of weak evidence, you will have difficulty interpreting subsequent information that contradicts these opinions, even if this new information is obviously more accurate. Two mechanisms are at play here: the confirmation bias that we saw in Chapter 5, and belief perseverance, the tendency not to reverse opinions you already have. Remember that we treat ideas like possessions, and it will be hard for us to part with them.
8. We humans are the victims of an asymmetry in the perception of random events. We attribute our successes to our skills, and our failures to external events outside our control, namely to randomness. We feel responsible for the good stuff, but not for the bad. This causes us to think that we are better than others at whatever we do for a living. Ninety-four percent of Swedes believe that their driving skills put them in the top 50 percent of Swedish drivers; 84 percent of Frenchmen feel that their lovemaking abilities put them in the top half of French lovers.
9. What people call “memes,” ideas that spread and that compete with one another using people as carriers, are not truly like genes. Ideas spread because, alas, they have for carriers self-serving agents who are interested in them, and interested in distorting them in the replication process. You do not make a cake for the sake of merely replicating a recipe—you try to make your own cake, using ideas from others to improve it. We humans are not photocopiers.
10. One can almost always ferret out predecessors for any thought. You can always find someone who worked on a part of your argument and use his contribution as your backup. The scientific association with a big idea, the “brand name,” goes to the one who connects the dots, not the one who makes a casual observation—even Charles Darwin, who uncultured scientists claim “invented” the survival of the fittest, was not the first to mention it. He wrote in the introduction of The Origin of Species that the facts he presented were not necessarily original; it was the consequences that he thought were “interesting” (as he put it with characteristic Victorian modesty). In the end it is those who derive consequences and seize the importance of the ideas, seeing their real value, who win the day. They are the ones who can talk about the subject.

If you liked the above content, I'd definitely recommend reading the whole book. 💯

Until We Meet Again...
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