6 things I learned from Nassim Taleb

Nassim Taleb is one of the authors and mentors who significantly influenced my thinking. I was lucky to meet him, here are some notions I learned from him.

Although I am doing a career in technology closer to products, people, and programming, I have a degree in Finance, and kept an interest for the field. A couple of decades back, Nassim Taleb started writing and I discovered his works through his book “Fooled by Randomness”. From there he expanded his ideas with The Black Swan, Bed of Procrustes, and Antifragile. His books explore the topic of uncertainty, and he titled the book collection Incerto.

Nassim was born in Lebanon, studied in Paris then moved to the US. His French language skills are that of a native. One day of 2013, lucky Black Swan event: he posts about giving a presentation in my hometown of Aix-en-Provence. I was there that same day, so we connected and spent the afternoon discussing our Mediterranean roots and life.

As much as I never planned on writing books, Nassim was an inspiration in writing The Mind Share Market, and Robustness. I could list more than 6 things I learnt from Nassim, but it would take forever. So I’ll stick to 6. For more ideas and to get to the root of his thinking, check out his awesome books.

1. What sometimes appears as the worst use of time may be the best

We measure the value of doing something at a particular point in time, in the context of the motivations and goals we have at that moment. But if you project yourself 50 years from now, or 500 years from now, would you still prioritize in the same order? Something Nassim does in his books is thought experiments. Often times he puts a particular theory, or point of view, and puts it to the test at different time periods. It’s another way of saying life is short. Do what you want to do.

2. Wake up every morning with an open mind

Another concept which recurs in Nassim’s works is to constantly re-evaluate what we take for granted. Some of the biggest changes in life come from assumptions we had about how things would go, and how they actually went. In a way, it can be destabilizing and counterproductive to wake up every morning saying “I don’t understand the world” because you end up questioning so many things, from how you eat to how you travel and how you allocate your priorities. But it can be also be eye opening, because you are never tied to assumptions and can constantly re-validate them. And it’s OK to re-validate them. The point is not to change opinions all the time or re-learn the basics every day. The point is more about the fact that sometimes, the basics change, and if you notice this, you will be better off.

3. Rare impactful events do not follow statistical models

The Black Swan is a deep exploration of the impact of rare events, which in hindsight look like they could have been predicted: the airplane incidents of 9/11, financial market crises, earthquakes and their consequences (e.g. Fukushima nuclear plant), and so on.

Nassim explains that because high-impact rare events, by definition happen very rarely, there is little to no historical data of their occurrence. By calculating statistical risks looking in the rear view mirror, i.e. taking past data points, most models are not good at predicting these outliers. It’s only when these events happen that all of a sudden, we can make sense of them and explain them – in hindsight.

4. Many input-output relationships (“functions”) confuse people by not being linear

Stating it simply: runners who like long distances go from 1 kilometers to 5, to 10, to 42 km (marathon), and to ultra marathons. Staying in bed all day causes body damage by lack of exercise. Running too much for too long also causes damage by excess. So if 1 kilometer of exercise a day does us good, 100 kilometers of exercise a day doesn’t do 100 times more good. It may seem obvious but the human mind looks for shortcuts. When people ask “is coffee good or bad for health?”, they seek a yes or no answer, while the answer largely depends on how much coffee.

The same goes for foods, drinks, money, all things which have a state of equilibrium, and a state of imbalance.

5. The edge resides outside of the corpus

Taleb did his professional career in financial markets as a trader. Traders look out for information, to be able to be one step ahead of each other. In that sense, there is a corpus of science on how to trade, a corpus of news media that everyone is reading, and because most players in the market are educated, this often yields no advantage.

There comes the concept of uncertainty, and of questioning pieces of information as they come to make your own judgement. You have to think and act in a way that is differentiated, and that gives you an edge. For that to happen, you have to look for what others don’t know yet, and what you don’t know yet. It is the analogy Taleb makes as the intro to the Black Swan: Umberto Ecco’s anti-library.

6. Go out in the world and build.

Taleb respects what he calls the local, as opposed to the universal. Universal rules (theories) do not always apply universally and they tend to be a bit pompous. On the other hand, practice, apprenticeship, rules of thumb (which have a scientific name: heuristics) take you from point A to point B for specific things you are trying to do. The local, that is, the narrow, the non-generalized, allows you to get a lot done by thinking concretely and taking action, as opposed to thinking broadly and forgetting the specific problem you are trying to solve. Something similar one of my former managers, Paul Weinstein, used to say: think broadly, execute narrowly.

Antifragile, Taleb’s most recent book as I write these lines, is his answer to uncertainty: use uncertainty to your advantage. Build, learn, fail fast if something needs to change, and iterate. Then build more.

In other words: life is uncertain. Use this as a tool to become more confident, because now you know a little more of what you don’t know. I think the wrong way to read Taleb’s works is to come the conclusion, and feeling, of paralysis by analysis, while in fact the message is the exact opposite.