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Anatomy of a Black Swan—The triplet of opacity—Reading books backward—The rearview mirror—Everything becomes explainable—Always talk to the driver （with caution）—History doesn't crawl; it jumps—“It was so unexpected”—Sleeping for twelve hours
This is not an autobiography, so I will skip the scenes of war. Actually, even if it were an autobiography, I would still skip the scenes of war. I cannot compete with action movies or memoirs of adventurers more accomplished than myself, so I will stick to my specialties of chance and uncertainty.
For more than a millennium the eastern Mediterranean seaboard called Syria Libanensis, or Mount Lebanon, had been able to accommodate at least a dozen different sects, ethnicities, and beliefs—it worked like magic. The place resembled major cities of the eastern Mediterranean （called the Levant） more than it did the other parts in the interior of the Near East （it was easier to move by ship than by land through the mountainous terrain）. The Levantine cities were mercantile in nature; people dealt with one another according to a clear protocol, preserving a peace conducive to commerce, and they socialized quite a bit across communities. This millennium of peace was interrupted only by small occasional friction within Moslem and Christian communities, rarely between Christians and Moslems. While the cities were mercantile and mostly Hellenistic, the mountains had been settled by all manner of religious minorities who claimed to have fled both the Byzantine and Moslem orthodoxies. A mountainous terrain is an ideal refuge from the mainstream, except that your enemy is the other refugee competing for the same type of rugged real estate. The mosaic of cultures and religions there was deemed an example of coexistence: Christians of all varieties （Maronites, Armenians, Greco-Syrian Byzantine Orthodox, even Byzantine Catholic, in addition to the few Roman Catholics left over from the Crusades）; Moslems （Shiite and Sunni）; Druzes; and a few Jews. It was taken for granted that people learned to be tolerant there; I recall how we were taught in school how far more civilized and wiser we were than those in the Balkan communities, where not only did the locals refrain from bathing but also fell prey to fractious fighting. Things appeared to be in a state of stable equilibrium, evolving out of a historical tendency for betterment and tolerance. The terms balance and equilibrium were often used.
Both sides of my family came from the Greco-Syrian community, the last Byzantine outpost in northern Syria, which included what is now called Lebanon. Note that the Byzantines called themselves “Romans”— Roumi （plural Roum） in the local languages. We originate from the olive-growing area at the base of Mount Lebanon—we chased the Maronite Christians into the mountains in the famous battle of Amioun, my ancestral village. Since the Arab invasion in the seventh century, we had been living in mercantile peace with the Moslems, with only some occasional harassment by the Lebanese Maronite Christians from the mountains. By some （literally） Byzantine arrangement between the Arab rulers and the Byzantine emperors, we managed to pay taxes to both sides and get protection from both. We thus managed to live in peace for more than a millennium almost devoid of bloodshed: our last true problem was the later troublemaking crusaders, not the Moslem Arabs. The Arabs, who seemed interested only in warfare （and poetry） and, later, the Ottoman Turks, who seemed only concerned with warfare （and pleasure）, left to us the uninteresting pursuit of commerce and the less dangerous one of scholarship （like the translation of Aramaic and Greek texts）.
By any standard the country called Lebanon, to which we found ourselves suddenly incorporated after the fall of the Ottoman Empire, in the early twentieth century, appeared to be a stable paradise; it was also cut in a way to be predominantly Christian. People were suddenly brainwashed to believe in the nation-state as an entity.
The Christians convinced themselves that they were at the origin and center of what is loosely called Western culture yet with a window on the East. In a classical case of static thinking, nobody took into account the differentials in birthrate between communities and it was assumed that a slight Christian majority would remain permanent. Levantines had been granted Roman citizenship, which allowed Saint Paul, a Syrian, to travel freely through the ancient world. People felt connected to everything they felt was worth connecting to; the place was exceedingly open to the world, with a vastly sophisticated lifestyle, a prosperous economy, and temperate weather just like California, with snow-covered mountains jutting above the Mediterranean. It attracted a collection of spies （both Soviet and Western）, prostitutes （blondes）, writers, poets, drug dealers, adventurers, compulsive gamblers, tennis players, après-skiers, and merchants—all professions that complement one another. Many people acted as if they were in an old James Bond movie, or the days when playboys smoked, drank, and, instead of going to the gym, cultivated relationships with good tailors.
The main attribute of paradise was there: cabdrivers were said to be polite （though, from what I remember, they were not polite to me）. True, with hindsight, the place may appear more Elysian in the memory of people than it actually was.
I was too young to taste the pleasures of the place, as I became a rebellious idealist and, very early on, developed an ascetic taste, averse to the ostentatious signaling of wealth, allergic to Levantine culture's overt pursuit of luxury and its obsession with things monetary.
As a teenager, I could not wait to go settle in a metropolis with fewer James Bond types around. Yet I recall something that felt special in the intellectual air. I attended the French lycée that had one of the highest success rates for the French baccalauréat （the high school degree）, even in the subject of the French language. French was spoken there with some purity: as in prerevolutionary Russia, the Levantine Christian and Jewish patrician class （from Istanbul to Alexandria） spoke and wrote formal French as a language of distinction. The most privileged were sent to school in France, as both my grandfathers were—my paternal namesake in 1912 and my mother's father in 1929. Two thousand years earlier, by the same instinct of linguistic distinction, the snobbish Levantine patricians wrote in Greek, not the vernacular Aramaic. （The New Testament was written in the bad local patrician Greek of our capital, Antioch, prompting Nietzsche to shout that “God spoke bad Greek.”） And, after Hellenism declined, they took up Arabic. So in addition to being called a “paradise,” the place was also said to be a miraculous crossroads of what are superficially tagged “Eastern” and “Western” cultures.
My ethos was shaped when, at fifteen, I was put in jail for （allegedly） attacking a policeman with a slab of concrete during a student riot—an incident with strange ramifications since my grandfather was then the minister of the interior, and the person who signed the order to crush our revolt. One of the rioters was shot dead when a policeman who had been hit on the head with a stone panicked and randomly opened fire on us. I recall being at the center of the riot, and feeling a huge satisfaction upon my capture while my friends were scared of both prison and their parents. We frightened the government so much that we were granted amnesty.
There were some obvious benefits in showing one's ability to act on one's opinions, and not compromising an inch to avoid “offending” or bothering others. I was in a state of rage and didn't care what my parents （and grandfather） thought of me. This made them quite scared of me , so I could not afford to back down, or even blink. Had I concealed my participation in the riot （as many friends did） and been discovered, instead of being openly defiant, I am certain that I would have been treated as a black sheep. It is one thing to be cosmetically defiant of authority by wearing unconventional clothes—what social scientists and economists call “cheap signaling”—and another to prove willingness to translate belief into action.
My paternal uncle was not too bothered by my political ideas （these come and go）; he was outraged that I used them as an excuse to dress sloppily. To him, inelegance on the part of a close family member was the mortal offense.
Public knowledge of my capture had another major benefit: it allowed me to avoid the usual outward signs of teenage rebellion. I discovered that it is much more effective to act like a nice guy and be “reasonable” if you prove willing to go beyond just verbiage. You can afford to be compassionate, lax, and courteous if, once in a while, when it is least expected of you, but completely justified, you sue someone, or savage an enemy, just to show that you can walk the walk.
The Lebanese “paradise” suddenly evaporated, after a few bullets and mortar shells. A few months after my jail episode, after close to thirteen centuries of remarkable ethnic coexistence, a Black Swan, coming out of nowhere, transformed the place from heaven to hell. A fierce civil war began between Christians and Moslems, including the Palestinian refugees who took the Moslem side. It was brutal, since the combat zones were in the center of the town and most of the fighting took place in residential areas （my high school was only a few hundred feet from the war zone）. The conflict lasted more than a decade and a half. I will not get too descriptive. It may be that the invention of gunfire and powerful weapons turned what, in the age of the sword, would have been just tense conditions into a spiral of uncontrollable tit-for-tat warfare.
Aside from the physical destruction （which turned out to be easy to reverse with a few motivated contractors, bribed politicians, and naïve bondholders）, the war removed much of the crust of sophistication that had made the Levantine cities a continuous center of great intellectual refinement for three thousand years. Christians had been leaving the area since Ottoman times—those who moved to the West took Western first names and melded in. Their exodus accelerated. The number of cultured people dropped below some critical level. Suddenly the place became a vacuum. Brain drain is hard to reverse, and some of the old refinement may be lost forever.
The next time you experience a blackout, take some solace by looking at the sky. You will not recognize it. Beirut had frequent power shutdowns during the war. Before people bought their own generators, one side of the sky was clear at night, owing to the absence of light pollution. That was the side of town farthest from the combat zone. People deprived of television drove to watch the erupting lights of nighttime battles. They appeared to prefer the risk of being blown up by mortar shells to the boredom of a dull evening.
So you could see the stars with great clarity. I had been told in high school that the planets are in something called equilibrium , so we did not have to worry about the stars hitting us unexpectedly. To me, that eerily resembled the stories we were also told about the “unique historical stability” of Lebanon. The very idea of assumed equilibrium bothered me. I looked at the constellations in the sky and did not know what to believe.
History is opaque. You see what comes out, not the script that produces events, the generator of history. There is a fundamental incompleteness in your grasp of such events, since you do not see what's inside the box, how the mechanisms work. What I call the generator of historical events is different from the events themselves, much as the minds of the gods cannot be read just by witnessing their deeds. You are very likely to be fooled about their intentions.
This disconnect is similar to the difference between the food you see on the table at the restaurant and the process you can observe in the kitchen. （The last time I brunched at a certain Chinese restaurant on Canal Street in downtown Manhattan, I saw a rat coming out of the kitchen.）
The human mind suffers from three ailments as it comes into contact with history, what I call the triplet of opacity . They are:
The first leg of the triplet is the pathology of thinking that the world in which we live is more understandable, more explainable, and therefore more predictable than it actually is.
I was constantly told by adults that the war, which ended up lasting close to seventeen years, was going to end in “only a matter of days.” They seemed quite confident in their forecasts of duration, as can be evidenced by the number of people who sat waiting in hotel rooms and other temporary quarters in Cyprus, Greece, France, and elsewhere for the war to finish. One uncle kept telling me how, some thirty years earlier, when the rich Palestinians fled to Lebanon, they considered it a very temporary solution （most of those still alive are still there, six decades later）. Yet when I asked him if it was going to be the same with our conflict, he replied, “No, of course not. This place is different; it has always been different.” Somehow what he detected in others did not seem to apply to him.
This duration blindness in the middle-aged exile is quite a widespread disease. Later, when I decided to avoid the exile's obsession with his roots （exiles’ roots penetrate their personalities a bit too deeply）, I studied exile literature precisely to avoid the traps of a consuming and obsessive nostalgia. These exiles seemed to have become prisoners of their memory of idyllic origin—they sat together with other prisoners of the past and spoke about the old country, and ate their traditional food while some of their folk music played in the background. They continuously ran counterfactuals in their minds, generating alternative scenarios that could have happened and prevented these historical ruptures, such as “if the Shah had not named this incompetent man as prime minister, we would still be there.” It was as if the historical rupture had a specific cause, and that the catastrophe could have been averted by removing that specific cause. So I pumped every displaced person I could find for information on their behavior during exile. Almost all act in the same way.
One hears endless stories of Cuban refugees with suitcases still half packed who came to Miami in the 1960s for “a matter of a few days” after the installation of the Castro regime. And of Iranian refugees in Paris and London who fled the Islamic Republic in 1978 thinking that their absence would be a brief vacation. A few are still waiting, more than a quarter century later, for the return. Many Russians who left in 1917, such as the writer Vladimir Nabokov, settled in Berlin, perhaps to be close enough for a quick return. Nabokov himself lived all his life in temporary housing, in both indigence and luxury, ending his days at the Montreux Palace hotel on Lake Geneva.
There was, of course, some wishful thinking in all of these forecasting errors, the blindness of hope, but there was a knowledge problem as well. The dynamics of the Lebanese conflict had been patently unpredictable, yet people's reasoning as they examined the events showed a constant: almost all those who cared seemed convinced that they understood what was going on. Every single day brought occurrences that lay completely outside their forecast, but they could not figure out that they had not forecast them. Much of what took place would have been deemed completely crazy with respect to the past. Yet it did not seem that crazy after the events. This retrospective plausibility causes a discounting of the rarity and conceivability of the event. I later saw the exact same illusion of understanding in business success and the financial markets.
Later, upon replaying the wartime events in my memory as I formulated my ideas on the perception of random events, I developed the governing impression that our minds are wonderful explanation machines, capable of making sense out of almost anything, capable of mounting explanations for all manner of phenomena, and generally incapable of accepting the idea of unpredictability. These events were unexplainable, but intelligent people thought they were capable of providing convincing explanations for them—after the fact. Furthermore, the more intelligent the person, the better sounding the explanation. What's more worrisome is that all these beliefs and accounts appeared to be logically coherent and devoid of inconsistencies.
So I left the place called Lebanon as a teenager, but, since a large number of my relatives and friends remained there, I kept coming back to visit, especially during the hostilities. The war was not continuous: there were periods of fighting interrupted by “permanent” solutions. I felt closer to my roots during times of trouble and experienced the urge to come back and show support to those left behind who were often demoralized by the departures—and envious of the fair-weather friends who could seek economic and personal safety only to return for vacations during these occasional lulls in the conflict. I was unable to work or read when I was outside Lebanon while people were dying, but, paradoxically, I was less concerned by the events and able to pursue my intellectual interests guilt-free when I was inside Lebanon. Interestingly, people partied quite heavily during the war and developed an even bigger taste for luxuries, making the visits quite attractive in spite of the fighting.
There were a few difficult questions. How could one have predicted that people who seemed a model of tolerance could become the purest of barbarians overnight? Why was the change so abrupt? I initially thought that perhaps the Lebanese war was truly not possible to predict, unlike other conflicts, and that the Levantines were too complicated a race to figure out. Later I slowly realized, as I started to consider all the big events in history, that their irregularity was not a local property.
The Levant has been something of a mass producer of consequential events nobody saw coming. Who predicted the rise of Christianity as a dominant religion in the Mediterranean basin, and later in the Western world? The Roman chroniclers of that period did not even take note of the new religion—historians of Christianity are baffled by the absence of contemporary mentions. Apparently, few of the big guns took the ideas of a seemingly heretical Jew seriously enough to think that he would leave traces for posterity. We only have a single contemporary reference to Jesus of Nazareth—in The Jewish Wars of Josephus—which itself may have been added later by a devout copyist. How about the competing religion that emerged seven centuries later; who forecast that a collection of horsemen would spread their empire and Islamic law from the Indian subcontinent to Spain in just a few years? Even more than the rise of Christianity, it was the spread of Islam （the third edition, so to speak） that carried full unpredictability; many historians looking at the record have been taken aback by the swiftness of the change. Georges Duby, for one, expressed his amazement about how quickly close to ten centuries of Levantine Hellenism were blotted out “with a strike of a sword.” A later holder of the same history chair at the Collège de France, Paul Veyne, aptly talked about religions spreading “like bestsellers”—a comparison that indicates unpredictability. These kinds of discontinuities in the chronology of events did not make the historian's profession too easy: the studious examination of the past in the greatest of detail does not teach you much about the mind of History; it only gives you the illusion of understanding it.
History and societies do not crawl. They make jumps. They go from fracture to fracture, with a few vibrations in between. Yet we （and historians） like to believe in the predictable, small incremental progression.
It struck me, a belief that has never left me since, that we are just a great machine for looking backward, and that humans are great at self-delusion. Every year that goes by increases my belief in this distortion.
Events present themselves to us in a distorted way. Consider the nature of information: of the millions, maybe even trillions, of small facts that prevail before an event occurs, only a few will turn out to be relevant later to your understanding of what happened. Because your memory is limited and filtered, you will be inclined to remember those data that subsequently match the facts, unless you are like the eponymous Funes in the short story by Jorge Luis Borges, “Funes, the Memorious,” who forgets nothing and seems condemned to live with the burden of the accumulation of unprocessed information. （He does not manage to live too long.）
I had my first exposure to the retrospective distortion as follows. During my childhood I had been a voracious, if unsteady, reader, but I spent the first phase of the war in a basement, diving body and soul into all manner of books. School was closed and it was raining mortar shells. It is dreadfully boring to be in basements. My initial worries were mostly about how to fight boredom and what to read next
—though being forced to read for lack of other activities is not as enjoyable as reading out of one's own volition. I wanted to be a philosopher （I still do）, so I felt that I needed to make an investment by forcibly studying others’ ideas. Circumstances motivated me to study theoretical and general accounts of wars and conflicts, trying to get into the guts of History, to get into the workings of that big machine that generates events.
Surprisingly, the book that influenced me was not written by someone in the thinking business but by a journalist: William Shirer's Berlin Diary: The Journal of a Foreign Correspondent, 1934–1941 . Shirer was a radio correspondent, famous for his book The Rise and Fall of the Third Reich . It occurred to me that the Journal offered an unusual perspective. I had already read （or read about） the works of Hegel, Marx, Toynbee, Aron, and Fichte on the philosophy of history and its properties and thought that I had a vague idea of the notions of dialectics, to the extent that there was something to understand in these theories. I did not grasp much, except that history had some logic and that things developed through contradiction （or opposites） in a way that elevated mankind into higher forms of society—that kind of thing. This sounded awfully similar to the theorizing around me about the war in Lebanon. To this day I surprise people who put the ludicrous question to me about what books “shaped my thinking” by telling them that this book taught me （albeit inadvertently） the most about philosophy and theoretical history—and, we will see, about science as well, since I learned the difference between forward and backward processes.
How? Simply, the diary purported to describe the events as they were taking place , not after. I was in a basement with history audibly unfolding above me （the sound of mortar shells kept me up all night）. I was a teenager attending the funerals of classmates. I was experiencing a nontheoretical unfolding of History and I was reading about someone apparently experiencing history as it went along. I made efforts to mentally produce a movielike representation of the future and realized it was not so obvious. I realized that if I were to start writing about the events later they would seem more … historical . There was a difference between the before and the after .
The journal was purportedly written without Shirer knowing what was going to happen next, when the information available to him was not corrupted by the subsequent outcomes. Some comments here and there were quite illuminating, particularly those concerning the French belief that Hitler was a transitory phenomenon, which explained their lack of preparation and subsequent rapid capitulation. At no time was the extent of the ultimate devastation deemed possible.
While we have a highly unstable memory, a diary provides indelible facts recorded more or less immediately; it thus allows the fixation of an unrevised perception and enables us to later study events in their own context. Again, it is the purported method of description of the event, not its execution, that was important. In fact, it is likely that Shirer and his editors did some cheating, since the book was published in 1941 and publishers, I am told, are in the business of delivering texts to the general public instead of providing faithful depictions of the authors’ mind-sets stripped of retrospective distortions. （By “cheating,” I mean removing at the time of publication elements that did not turn out to be relevant to what happened, thus enhancing those that may interest the public. Indeed the editing process can be severely distorting, particularly when the author is assigned what is called a “good editor.”） Still, encountering Shirer's book provided me with an intuition about the workings of history. One would suppose that people living through the beginning of WWII had an inkling that something momentous was taking place. Not at all.
Shirer's diary turned out to be a training program in the dynamics of uncertainty. I wanted to be a philosopher, not knowing at the time what most professional philosophers did for a living. The idea led me to adventure （rather to the adventurous practice of uncertainty） and also to mathematical and scientific pursuits instead.
I will introduce the third element of the triplet, the curse of learning, as follows. I closely watched my grandfather, who was minister of defense, and later minister of the interior and deputy prime minister in the early days of the war, before the fading of his political role. In spite of his position he did not seem to know what was going to happen any more than did his driver, Mikhail. But unlike my grandfather, Mikhail used to repeat “God knows” as his main commentary on events, transferring the task of understanding higher up.
I noticed that very intelligent and informed persons were at no advantage over cabdrivers in their predictions, but there was a crucial difference. Cabdrivers did not believe that they understood as much as learned people—really, they were not the experts and they knew it. Nobody knew anything, but elite thinkers thought that they knew more than the rest because they were elite thinkers, and if you're a member of the elite, you automatically know more than the nonelite.
It is not just knowledge but information that can be of dubious value. It came to my notice that almost everybody was acquainted with current events in their smallest details. The overlap between newspapers was so large that you would get less and less information the more you read. Yet everyone was so eager to become familiar with every fact that they read every freshly printed document and listened to every radio station as if the great answer was going to be revealed to them in the next bulletin. People became encyclopedias of who had met with whom and which politician said what to which other politician （and with what tone of voice: “Was he more friendly than usual?”）. Yet to no avail.
I also noticed during the Lebanese war that journalists tended to cluster not necessarily around the same opinions but frequently around the same framework of analyses. They assign the same importance to the same sets of circumstances and cut reality into the same categories—once again the manifestation of Platonicity, the desire to cut reality into crisp shapes. What Robert Fisk calls “hotel journalism” further increased the mental contagion. While Lebanon in earlier journalism was part of the Levant, i.e., the eastern Mediterranean, it now suddenly became part of the Middle East, as if someone had managed to transport it closer to the sands of Saudi Arabia. The island of Cyprus, around sixty miles from my village in northern Lebanon, and with almost identical food, churches, and habits, suddenly became part of Europe （of course the natives on both sides became subsequently conditioned）. While in the past a distinction had been drawn between Mediterranean and non-Mediterranean （i.e., between the olive oil and the butter）, in the 1970s the distinction suddenly became that between Europe and non-Europe. Islam being the wedge between the two, one does not know where to place the indigenous Arabic-speaking Christians （or Jews） in that story. Categorizing is necessary for humans, but it becomes pathological when the category is seen as definitive, preventing people from considering the fuzziness of boundaries, let alone revising their categories. Contagion was the culprit. If you selected one hundred independent-minded journalists capable of seeing factors in isolation from one another, you would get one hundred different opinions. But the process of having these people report in lockstep caused the dimensionality of the opinion set to shrink considerably—they converged on opinions and used the same items as causes. For instance, to depart from Lebanon for a moment, all reporters now refer to the “roaring eighties,” assuming that there was something particularly distinct about that exact decade. And during the Internet bubble of the late 1990s, journalists agreed on crazy indicators as explanatory of the quality of worthless companies that everyone wanted very badly. *
If you want to see what I mean by the arbitrariness of categories, check the situation of polarized politics. The next time a Martian visits earth, try to explain to him why those who favor allowing the elimination of a fetus in the mother's womb also oppose capital punishment. Or try to explain to him why those who accept abortion are supposed to be favorable to high taxation but against a strong military. Why do those who prefer sexual freedom need to be against individual economic liberty?
I noticed the absurdity of clustering when I was quite young. By some farcical turn of events, in that civil war of Lebanon, Christians became pro-free market and the capitalistic system—i.e., what a journalist would call “the Right”—and the Islamists became socialists, getting support from Communist regimes （Pravda , the organ of the Communist regime, called them “oppression fighters,” though subsequently when the Russians invaded Afghanistan, it was the Americans who sought association with bin Laden and his Moslem peers）.
The best way to prove the arbitrary character of these categories, and the contagion effect they produce, is to remember how frequently these clusters reverse in history. Today's alliance between Christian fundamentalists and the Israeli lobby would certainly seem puzzling to a nineteenth-century intellectual—Christians used to be anti-Semites and Moslems were the protectors of the Jews, whom they preferred to Christians. Libertarians used to be left-wing. What is interesting to me as a probabilist is that some random event makes one group that initially supports an issue ally itself with another group that supports another issue, thus causing the two items to fuse and unify … until the surprise of the separation.
Categorizing always produces reduction in true complexity. It is a manifestation of the Black Swan generator, that unshakable Platonicity that I defined in the Prologue. Any reduction of the world around us can have explosive consequences since it rules out some sources of uncertainty; it drives us to a misunderstanding of the fabric of the world. For instance, you may think that radical Islam （and its values） are your allies against the threat of Communism, and so you may help them develop, until they send two planes into downtown Manhattan.
It was a few years after the beginning of the Lebanese war, as I was attending the Wharton School, at the age of twenty-two, that I was hit with the idea of 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 therefore be useless, particularly to a businessman, since prices can already “include” all such information, and news shared with millions gives you no real advantage. Odds are that one or more of the hundreds of millions of other readers of such information will already have bought the security, thus pushing up the price. I then completely gave up reading newspapers and watching television, which freed up a considerable amount of time （say one hour or more a day, enough time to read more than a hundred additional books per year, which, after a couple of decades, starts mounting）. But this argument was not quite the entire reason for my dictum in this book to avoid the newspapers, as we will see further benefits in avoiding the toxicity of information. It was initially a great excuse to avoid keeping up with the minutiae of business, a perfect alibi since I found nothing interesting about the details of the business world—inelegant, dull, pompous, greedy, unintellectual, selfish, and boring.
Why someone with plans to become a “philosopher” or a “scientific philosopher of history” would wind up in business school, and the Wharton School no less, still escapes me. There I saw that it was not merely some inconsequential politician in a small and antique country （and his philosophical driver Mikhail） who did not know what was going on. After all, people in small countries are supposed to
not know
what is going on. What I saw was that in one of the most prestigious business schools in the world, in the most potent country in the history of the world, the executives of the most powerful corporations were coming to describe what they did for a living, and it was possible that they too did not know what was going on. As a matter of fact, in my mind it was far more than a possibility. I felt in my spine the weight of the epistemic arrogance of the human race.
I became obsessive. At the time, I started becoming conscious of my subject—the highly improbable consequential event . And it was not only well-dressed, testosterone-charged corporate executives who were usually fooled by this concentrated luck, but persons of great learning. This awareness turned my Black Swan from a problem of lucky or unlucky people in business into a problem of knowledge and science. My idea is that not only are some scientific results useless in real life, because they underestimate the impact of the highly improbable （or lead us to ignore it）, but that many of them may be actually creating Black Swans. These are not just taxonomic errors that can make you flunk a class in ornithology. I started to see the consequences of the idea.
Four and a half years after my graduation from Wharton （and 8¾ pounds heavier）, on October 19, 1987, I walked home from the offices of the investment bank Credit Suisse First Boston in Midtown Manhattan to the Upper East Side. I walked slowly, as I was in a bewildered state.
That day saw a traumatic financial event: the largest market drop in （modern） history. It was all the more traumatic in that it took place at a time when we thought we had become sufficiently sophisticated with all these intelligent-talking Platonified economists （with their phony bell curve-based equations） to prevent, or at least forecast and control, big shocks. The drop was not even the response to any discernible news. The occurrence of the event lay outside anything one could have imagined on the previous day—had I pointed out its possibility, I would have been called a lunatic. It qualified as a Black Swan, but I did not know the expression then.
I ran into a colleague of mine, Demetrius, on Park Avenue, and, as I started talking to him, an anxiety-ridden woman, losing all inhibitions, jumped into the conversation: “Hey, do the two of you know what's going on?” People on the sidewalk looked dazed. Earlier I had seen a few adults silently sobbing in the trading room of First Boston. I had spent the day at the epicenter of the events, with shell-shocked people running around like rabbits in front of headlights. When I got home, my cousin Alexis called to tell me that his neighbor committed suicide, jumping from his upper-floor apartment. It did not even feel eerie. It felt like Lebanon, with a twist: having seen both, I was struck that financial distress could be more demoralizing than war （just consider that financial problems and the accompanying humiliations can lead to suicide, but war doesn't appear to do so directly）.
I feared a Pyrrhic victory: I had been vindicated intellectually, but I was afraid of being too right and seeing the system crumble under my feet. I did not really want to be that right. I will always remember the late Jimmy P. who, seeing his net worth in the process of melting down, kept half-jokingly begging the price on the screen to stop moving.
But I realized then and there that I did not give a hoot about the money. I experienced the strangest feeling I have ever had in my life, this deafening trumpet signaling to me that I was right , so loudly that it made my bones vibrate. I have never had it since and will never be able to explain it to those who have never experienced it. It was a physical sensation, perhaps a mixture of joy, pride, and terror.
And I felt vindicated? How?
During the one or two years after my arrival at Wharton, I had developed a precise but strange specialty: betting on rare and unexpected events, those that were on the Platonic fold , and considered “inconceivable” by the Platonic “experts.” Recall that the Platonic fold is where our representation of reality ceases to apply—but we do not know it.
For I was early to embrace, as a day job, the profession of “quantitative finance.” I became a “quant” and trader at the same time—a quant is a brand of industrial scientist who applies mathematical models of uncertainty to financial （or socioeconomic） data and complex financial instruments. Except that I was a quant exactly in reverse: I studied the flaws and the limits of these models, looking for the Platonic fold where they break down. Also I engaged in speculative trading, not “just tawk,” which was rare for quants since they were prevented from “taking risks,” their role being confined to analysis, not decision making. I was convinced that I was totally incompetent in predicting market prices—but that others were generally incompetent also but did not know it, or did not know that they were taking massive risks. Most traders were just “picking pennies in front of a streamroller,” exposing themselves to the high-impact rare event yet sleeping like babies, unaware of it. Mine was the only job you could do if you thought of yourself as risk-hating, risk-aware, and highly ignorant.
Also, the technical baggage that comes with being a quant （a mixture of applied mathematics, engineering, and statistics）, in addition to the immersion in practice, turned out to be very useful for someone wanting to be a philosopher. * First, when you spend a couple of decades doing mass-scale empirical work with data and taking risks based on such studies, you can easily spot elements in the texture of the world that the Platonified “thinker” is too brainwashed, or threatened, to see. Second, it allowed me to become formal and systematic in my thinking instead of wallowing in the anecdotal. Finally, both the philosophy of history and epistemology （the philosophy of knowledge） seemed inseparable from the empirical study of times series data, which is a succession of numbers in time, a sort of historical document containing numbers instead of words. And numbers are easy to process on computers. Studying historical data makes you conscious that history runs forward, not backward, and that it is messier than narrated accounts. Epistemology, the philosophy of history, and statistics aim at understanding truths, investigating the mechanisms that generate them, and separating regularity from the coincidental in historical matters. They all address the question of what one knows, except that they are all to be found in different buildings, so to speak.
That night, on October 19, 1987, I slept for twelve hours straight.
It was hard to tell my friends, all hurt in some manner by the crash, about this feeling of vindication. Bonuses at the time were a fraction of what they are today, but if my employer, First Boston, and the financial system survived until year-end, I would get the equivalent of a fellowship. This is sometimes called “f*** you money,” which, in spite of its coarseness, means that it allows you to act like a Victorian gentleman, free from slavery. It is a psychological buffer: the capital is not so large as to make you spoiled-rich, but large enough to give you the freedom to choose a new occupation without excessive consideration of the financial rewards. It shields you from prostituting your mind and frees you from outside authority—any outside authority. （Independence is person-specific: I have always been taken aback at the high number of people in whom an astonishingly high income led to additional sycophancy as they became more dependent on their clients and employers and more addicted to making even more money.） While not substantial by some standards, it literally cured me of all financial ambition—it made me feel ashamed whenever I diverted time away from study for the pursuit of material wealth. Note that the designation f*** you corresponds to the exhilarating ability to pronounce that compact phrase before hanging up the phone.
These were the days when it was extremely common for traders to break phones when they lost money. Some resorted to destroying chairs, tables, or whatever would make noise. Once, in the Chicago pits, another trader tried to strangle me and it took four security guards to drag him away. He was irate because I was standing in what he deemed his “territory.” Who would want to leave such an environment? Compare it to lunches in a drab university cafeteria with gentle-mannered professors discussing the latest departmental intrigue. So I stayed in the quant and trading businesses （I’m still there）, but organized myself to do minimal but intense （and entertaining） work, focus only on the most technical aspects, never attend business “meetings,” avoid the company of “achievers” and people in suits who don't read books, and take a sabbatical year for every three on average to fill up gaps in my scientific and philosophical culture. To slowly distill my single idea, I wanted to become a flâneur, a professional meditator, sit in cafés, lounge, unglued to desks and organization structures, sleep as long as I needed, read voraciously, and not owe any explanation to anybody. I wanted to be left alone in order to build, small steps at a time, an entire system of thought based on my Black Swan idea.
The war in Lebanon and the crash of 1987 seemed identical phenomena. It became obvious to me that nearly everyone had a mental blindspot in acknowledging the role of such events: it was as if they were not able to see these mammoths, or that they rapidly forgot about them. The answer was looking straight at me: it was a psychological, perhaps even biological, blindness; the problem lay not in the nature of events, but in the way we perceived them.
I end this autobiographical prelude with the following story. I had no defined specialty （outside of my day job）, and wanted none. When people at cocktail parties asked me what I did for a living, I was tempted to answer, “I am a skeptical empiricist and a flâneur-reader, someone committed to getting very deep into an idea,” but I made things simple by saying that I was a limousine driver.
Once, on a transatlantic flight, I found myself upgraded to first class next to an expensively dressed, high-powered lady dripping with gold and jewelry who continuously ate nuts （low-carb diet, perhaps）, insisted on drinking only Evian, all the while reading the European edition of The Wall Street Journal . She kept trying to start a conversation in broken French, since she saw me reading a book （in French） by the sociologist-philosopher Pierre Bourdieu—which, ironically, dealt with the marks of social distinction. I informed her （in English） that I was a limousine driver, proudly insisting that I only drove “very upper-end” cars. An icy silence lasted the whole flight, and, although I could feel the tension, it allowed me to read in peace.
* We will see in Chapter 10 some clever quantitative tests done to prove such herding; they show that, in many subject matters, the distance between opinions is remarkably narrower than the distance between the average of opinions and truth.
*
I specialized in complicated financial instruments called “derivatives,” those that required advanced mathematics—but for which the errors for using the wrong mathematics were the greatest. The subject was new and attractive enough for me to get a doctorate in it.
Note that I was not able to build a career just by betting on Black Swans—there were not enough tradable opportunities. I could, on the other hand, avoid being exposed to them by protecting my portfolio against large losses. So, in order to eliminate the dependence on randomness, I focused on technical inefficiencies between complicated instruments, and on exploiting these opportunities without exposure to the rare event, before they disappeared as my competitors became technologically advanced. Later on in my career I discovered the easier （and less randomness laden） business of protecting, insurance-style, large portfolios against the Black Swan.