"It ain't so much the things we don't know that get us into trouble. It's the things we know that just ain't so." Mark TwainI keep finding gems of wisdom in Nassim Nicholas Taleb's The Black Swan: The Impact of the Highly Improbable. It's not so much that I'm getting Ah Ha! moments on every page, even though there are plenty, but rather that Taleb sums up so many things succiently that I've been gleaning for years from the very books and articles he cites. It's like coming home. I'm not going to review the Taleb's book here/now. If you are not familiar with it you can find several reviews hyperlinked below, or go to Taleb's Home Page for more.
Instead, I simply want to highlight a few interesting The Black Swan tidbits. Maybe that will whet your appetite for more. Let's look at snippets of Taleb's key points about how we are too often blinded in thinking and decision-making by what he calls the "ludic fallacy" (force-fitting chaotic emergent or past "reality" into models) and the "narrative fallacy" (force-fitting the same into storylines). Let's first look at the ludic fallacy. Taleb:
What is the ludic fallacy? Ludic comes from ludis, Latin for games. … In the casino you know the rules, you can calcalute the odds, and the type of uncertainty we encounter there. …Now let's look at the narrative fallacy. Taleb:
In real life you do not know the odds; you need to discover them, and the sources of uncertainty are not defined. Economists … draw an artifical distinction between Knightian risks (which you can compute), and Knightian uncertainty (which you cannot compute), after … Frank Knight ….
Yet we automatically, spontaneously associate chance with these Platonified [or "scientitized"] games. …
Those who spend too much time with their noses glued to maps will tend to mistake the map for the territory. … I recently looked at what college students are taught under the subject of chance and came out horrified; they were brainwashed with this ludic fallacy and the outlandish bell curve. The same is true of people doing PhD's in the field of probability theory. … [A]ssuming chance has anything to do with mathematics, what little mathematization we can do in the real world does not assume the mild randomness represented by the bell cureve, but rather scalable wild randomness. What can be mathematized is usually not Gaussian, but Mandelbrotian.
Now, go read any of the great classical thinkers who had something practical to say bout the subject of chance, such as Cicero, and you find … a notion of probability that remains fuzzy throughout, as it needs to be, since such fuzziness is the very nature of [real world] uncertainty. Probability is a liberal art; it is a child of skepticism, not a tool for people with calculators on their belts to satisfy their desire to produce fancy calculations and certainties. Before Western thinking drowned in its "scientific" mentality, what is arrogantly called the Enlightenment, people prompted their brain to think—not compute. … (pp. 127-129)
We like stories, we like to summarize, and we like to simplify, i.e., to reduce the dimension of matters. The … narrative fallacy… is associated with our vulnerability to overinterpretation and our predilection for compact stories over raw truths. It severely distorts our mental representation of the world; it is particularly acute when it comes to the rare event. …Taleb warns us that we can be fooled by our own memory over-writes (i.e. that each time we revisit a memory we alter it a bit), by reconstructed history, by journalists forcing 'cause' into so-called news, by politicians and marketers 'spin' and 'frame control', etc. In short, it is up to each of us to avoid being trapped, blinded by either ludic or narrative fallacies.
The narrative fallacy addresses our limited ability to look at sequences of facts without weaving an explanation into them, or, equivalently forcing a logical link, and arrow of relationship, upon them. Explanations bind facts together. They make them all the more easily remembered; they help them make more sense. Where this propensity can go wrong is when it increases our impressions of understanding. …
We … have a hunger for rules because we need to reduce the dimension of matters so they can get into our heads. Or, rather, sadly, so we can squeeze them into our [strictly limited "working memory]. The more random information is, the greater the dimensionality, and thus the more difficult to summarize. The more you summarize the more order you put in, the less randomness. Hence the same conditions that makes us simplify pushes us to think that the world is lesss random than it actually is.
And the Black Swan is what we leave out of simplification.
Both the artistic and scientific enterprises are the product of our need to reduce dimensions and inflict some order on things. … A novel, a story, a myth, or a tale, all have the same function: they spare us from the complexity of the world and shield us from its randomness. Myths impart order to the disorder of human perception and the perceived "chaos of human experience." …
Our tendency to perceive—to impose—narrativity and causality are symptoms of the same disease—dimension reduction. Moreover, like causality, narrativity has a chronological dimension and leads to the perception of the flow of time. Causality makes time flow in a single direction, and so does narrativity. (pp. 63-70)
Three The Black Swan reviews: gushy positive (The Econophysics Blog) , positive (Roger Lowenstein, Portfolix.com) , positive (Allen Lane, The Independent), negative (Gregg Easterbrook, NY Times)
I liked the "gushy positive" review, but I'm a contrarian, a chaotician, and a member the dissident band who label themselves Post Autistic in their economic views. More reviews are available via Taleb's Home Page.
Wikipedia on Gauss
Wikipedia on Mandelbrot
Wikipedia on Taleb
P.S As per the lead-in "quote": It sounds like something Mark Twain might have said but likely didn't. Still, people sometimes attribute the quote to Twain.