The Art of Thinking Clearly: Better Thinking, Better Decisions

See also Introspection Illusion (ch. 67); Endowment Effect (ch. 23); Self-Serving Bias
(ch. 45); False-Consensus Effect (ch. 77)

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75
HOW TO PROFIT FROM THE IMPLAUSIBLE
The Black Swan
‘All swans are white.’ For centuries, this statement was watertight. Every snowy
specimen corroborated this. A swan in a different colour? Unthinkable. That was
until the year 1697, when Willem de Vlamingh saw a black swan for the first time
during an expedition to Australia. Since then, black swans have become symbols
of the improbable.
You invest money in the stock market. Year in, year out, the Dow Jones rises
and falls a little. Gradually, you grow accustomed to this gentle up and down.
Then, suddenly, a day like 19 October 1987 comes around and the stock market
tumbles 22%. With no warning. This event is a Black Swan, as described by
Nassim Taleb in his book with the same title.
A 
Black Swan
is an unthinkable event that massively affects your life, your
career, your company, your country. There are positive and negative 
Black
Swans
. The meteorite that flattens you, Sutter’s discovery of gold in California,
the collapse of the Soviet Union, the invention of the transistor, the Internet
browser, the overthrow of Egyptian dictator Mubarak or another encounter that
upturns your life completely – all are 
Black Swans
.
Think what you like of former U.S. secretary of defence Donald Rumsfeld, but
at a press conference in 2002, he expressed a philosophical thought with
exceptional clarity when he offered this observation: there are things we know
(‘known facts’), there are things we do not know (‘known unknowns’) and there
are things that we do not know that we do not know (‘unknown unknowns’).
How big is the universe? Does Iran have nuclear weapons? Does the Internet
make us smarter or dumber? These are ‘known unknowns’. With enough effort,
we can hope to answer these one day. Unlike the ‘unknown unknowns’. No one
foresaw Facebook mania ten years ago. It is a 
Black Swan
.
Why are 
Black Swans
important? Because, as absurd as it may sound, they
are cropping up more and more frequently and they tend to become more
consequential. Though we can continue to plan for the future, 
Black Swans
often

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destroy our best-laid plans. Feedback loops and non-linear influences interact
and cause unexpected results. The reason: our brains are designed to help us
hunt and gather. Back in the Stone Age, we hardly ever encountered anything
truly extraordinary. The deer we chased was sometimes a bit faster or slower,
sometimes a little bit fatter or thinner. Everything revolved around a stable mean.
Today is different. With one breakthrough, you can increase your income by a
factor of 10,000. Just ask Larry Page, Usain Bolt, George Soros, J.K. Rowling or
Bono. Such fortunes did not exist previously; peaks of this size were unknown.
Only in the most recent of human history has this been possible – hence our
problem with extreme scenarios. Since probabilities cannot fall below zero, and
our thought processes are prone to error, you should assume that everything has
an above-zero probability.
So, what can be done? Put yourself in situations where you can catch a ride on
a positive 
Black Swan
(as unlikely as that is). Become an artist, inventor or
entrepreneur with a scaleable product. If you sell your time (e.g. as an employee,
dentist or journalist), you are waiting in vain for such a break. But even if you feel
compelled to continue as such, avoid surroundings where negative 
Black Swans
thrive. This means: stay out of debt, invest your savings as conservatively as
possible and get used to a modest standard of living – no matter whether your big
breakthrough comes or not.