Examples of Black Swans

• Market Crash of 1987
• Lebanese Civil War

Part 1: Umberto Eco's AntiLibrary, or How We Seek Validation

This section addresses how humans deal with knowledge and our preference for the anecdotal over the empirical.

The Anti-Library

Quotes

• "A library should contain as much of what you do not know, as your financial situation allows you to put there"
• "The more you know, the larger the rows of unread books"
• "Read books are far less valuable than unread ones"

The Triplet of Opacity

The human mind suffers from three ailments as it comes into contact with history:

1. Illusion of understanding

• Everyone thinks they know what's going on in a world that is more complicated (or random) than they realize

  • Lebanese Civil War
    • No one was expecting it or could have possibly imagined it was coming
    • While it was happening, everyone thought it would be over "in a few days"
    • After the fact, everyone could pinpoint exactly how it started
    • Intelligent and informed people were at no advantage over taxicab drivers
      • Cabdrivers knew they were not experts
      • "Elite thinkers" thought they knew more than the rest automatically because they were elite thinkers
  • Market Crash of 1987
    • "I was convinced I was totally incompetent in predicting market prices- but that were generally incompetent also but did not know it, or did not know they were taking massive risks"
      • Example of a Black Swan
        • Drop was not in response to any discernible news
      • Efficient Markets: an idea that holds that there is no way to derive profits from traded securities since these instruments have automatically incorporated all the available information
        • Public Information can be particularly useless, since prices already "include" all such information, and news shared with millions gives you no real advantage
        • Avoid the toxicity of information, NTT doesn't read the news
    • "I was struck financial distress could be more demoralizing than war" (18)

  Lebanese Civil War

  • The largest market drop in (modern) history

2. Retrospective distortion: how we can only assess matters after the fact

• Hindsight Bias
• History seems clearer and more organized in history books than in empirical reality
• The book that influenced NTT: William Shirer's Berlin Diary: The Journal of a Foreign Correspondent
  • Described events as they were taking place, not after
• Humans are blind to things they can't understand