When this man said the world’s economy was heading for disaster, he was scorned. Now traders, economists, even Nasa, are clamouring to hear him speak

How Nassim Taleb turned the inevitability of disaster into an investment strategy

A few days ago, I blogged about Nassim Nicholas Taleb’s new book, The Black Swan, and solicited questions for a Q&A that NNT had agreed to answer. Here now is our inaugural user-generated Q&A.

Nassim Taleb talks about the challenges of coping with uncertainty, predicting events, and understanding history. This wide-ranging conversation looks at investment, health, history and other areas where data play a key role. Taleb, the author of Fooled By Randomness and The Black Swan, imagines two countries, Mediocristan and Extremistan where the ability to understand the past and predict the future is radically different.

A black swan is an outlier, an event that lies beyond the realm of normal expectations. Most people expect all swans to be white because that's what their experience tells them; a black swan is by definition a surprise. Nevertheless, people tend to concoct explanations for them after the fact, which makes them appear more predictable, and less random, than they are. Our minds are designed to retain, for efficient storage, past information that fits into a compressed narrative. This distortion, called the hindsight bias, prevents us from adequately learning from the past.

People who predict the future well are sometimes said to be psychic. But we all make predictions about the future, with more or less success. We confidently predict the sun will rise tomorrow, that ice will be cold, etc. But maybe we're not quite as good at predicting the future as we think. Is the stock market predictable? The weather? Political upheavals? Or is life just too random to make good predictions? John and Ken predict that Nassim Taleb, author of The Black Swan: The Impact of the Highly Improbable, will join them to consider the extent to which we can forecast the future.

I have seen in Richard Dawkins' work many references to the difficulty people have, when looking at an animal, in accepting that it is not the product of a top-down design, but the result of a random process — more exactly the upper bound of a random process, in which (roughly, and only roughly) the most successful mutations tend to make it. Yet my problem is that when those who accept the evolutionary argument look at a computer, at a laser beam, at a successful drug, at a surgical technique, at the spread of a language, at the growth of a city, or at an commercial enterprise, they tend to fall for the belief that its discovery or establishment partook of some grand design. And, in hindsight, some "explanation" will be given as to why it happened: there was a plot — it could not have been an accident.

We humans are naturally gullible — disbelieving requires an extraordinary expenditure of energy. It is a limited resource. I suggest ranking the skepticism by its consequences on our lives. True, the dangers of organized religion used to be there — but they have been gradually replaced with considerably ruthless and unintrospective social-science ideology.

Author Nassim Nicholas Taleb discusses his theory about events he calls "Black Swans" — occurrences that seems to be totally impossible. In his new book, The Black Swan: The Impact of the Highly Improbable, Nassim explains how to understand the structure of uncertainty.

Quick Footnotes (generally working notes I don’t end up putting in my book) by Nassim Nicholas Taleb.