A black swan incident is identified by the following: it is an outlier, it carries an extreme impact and it concocts explanations for its occurrence after the fact, making it explainable and predictable. In summary, characterized by rarity, extreme impact and retrospective predictability.
NNT disagrees with Marx & Adam Smith – The reason free markets work is they allow people to be lucky, Thanks to aggressive trial and error, not by giving rewards or “incentives” for skill. The strategy is, then, to tinker as much as possible and try to collect as many black swans opportunities as you can.
Readers despise writers who pander them
Scalable jobs: unlike dentist, prostitute, barber and butcher but like a entrepreneur, CEO, businessman – the inequity comes when someone is perceived as being marginally better gets the whole pie. In art, talent comes from success, rather than its opposite
Mediocristan and Extremistan
Former: height, weight, income of a baker, prostitute, gambling profits, car accidents.
Latter: wealth, income, book sales per author, damage caused by earthquake, deaths in war, financial markets
Nero, the fictional trader’s advice
World is of two categories: some are like turkey, exposed to major blowup without being aware of it and while others play reverse turkey, prepared for big events that might surprise others In some strategies and life situations, you gamble dollars to win succession of pennies while appearing to be winning all the time. In others you risk a succession of pennies to win dollars:- I’d like to be latter and wait for a black swan to happen….financially and in life and never curtail that self learning and perseverance qualities.
Seneca was a great teacher of and practitioner of stoicism, who transformed Stoicism from metaphysical and theoretical discourse to practical and moral program of living, a way to reach summum bonum, an untranslatable expression depicting a life of supreme qualities, as perceived by Romans. Stoicism is about dealing with loss, and finding ways to overcome our loss aversion – how to become less dependent on what you have. In Seneca’s Epistle IX, Stilbo’s country was captured by Demetrius, called the Sacker if Cities. Stilbo’s children and his wife were killed. Stilbo was asked what his losses were. Nihil perditi, I have lost nothing, he answered. My goods are all with me. The man has reached stoic self-sufficiency, the robustness to adverse events.
Black Swan robust Society
What to do with fourth quadrant
Phronetic rules (in the Aristotelian sense of phronesis, decision making wisdom): What is wise to do (or not to do) on real life to mitigate the fourth quadrant (black swan area) if you can’t barbell? –>
- Have respect for time and non-demonstrative knowledge: things that have worked for long time are preferable
- Avoid optimization; learn to love redundancy – redundancy (in terms of having savings and cash under the mattress) is the opposite of debt. Also buy insurance to robustify it.
- Avoid small probability payoffs – though not necessarily from ordinary ones, payoffs from remote events are more difficult to predict
- Beware moral hazard with bonus payments – It’s optimal to make a series of bonuses by betting on hidden risks in 4th quadrant, then blow up and write thank-you letter. This applies to bankers and company executives
- Avoid some risk metrics
- Do not confuse absence of volatility with absence of risks
- Beware of presentation of risk numbers