### Dispatches from Extremistan

A "black swan," Taleb explained, is an event which is 1) Hard to predict; 2) Highly consequential; 3) Wrongly retro-predicted. We pretend we know why the big event happened, and so entrench our inability to deal with the next world-changing improbable event.

Examples: Viagra, 9/11, Harry Potter, First World War, Beatles, the PC, Google, and the rise of any successful religion. History is dominated by sudden, lasting changes wrought by deeply unexpected events.

Part of the problem is that we ignore the "silent evidence" of the nonobserved and nonobservable. We compute probability from the success of survivors. No one writes or reads a book titled "How I Lost a Million Dollars." Another problem is that we revise our own predictions and intentions unconsciously to match what actually happens. We disguise having been wrong by pretending we were right. This is "confirmation bias."

There are TWO kinds of randomness, two realms in which events happen…

Mediocristan is dominated by the average-- one new observation won't change much. If you are measuring the weight of a large sample of humans, adding the heaviest person in the world won't change the result, whereas measuring the average wealth of a large sample of humans would be transformed by adding the wealthiest person. Mediocristan is the realm of the Law of Large Numbers and of the Gaussian Bell Curve.

Extremistan is dominated by extremes. Every year 16,000 novels are published in English. A handful of best-sellers absolutely dominate. This is the realm of the power-law curve and the Long Tail. Extremistan defies prediction. You can say there will be a few monsters and lots of midgets and the world will be changed by the monsters, and that's all you can say.

Benoit Mandelbrot convinced Taleb that the main dynamic of Mediocristan is energy, and the main dynamic of Extremistan is information. Anything social is Extremistan.

Thus there are two kinds of experts. A souffle chef really is an expert and can be trusted. An economist is a pseudo-expert. "Never take advice from someone wearing a tie." All you get from a Council of Economic Advisors is an illusion of control. Stock market analysts have proved to be worse than nothing.

Don't focus on probability. Focus on consequences. Black Swans will come. Prepare against the negative ones; be ready to soar with the positive ones.

Pay attentive heed to tradition and old people-- they have experienced more Black Swans.

PS… All of the SALT speakers perform for free. Taleb added the further generosity of insisting on paying for his travel and lodging. Extra thanks to him for that.