Where Black Swans Are Normal

A black swan in Bulgaria. Photo courtesy Kiril Kastev. License: CC BY-SA 3.0

Those of us who have made a port visit to Perth, Western Australia, or have just gone there on a regular vacation (or even live there) have seen many black swans sail majestically down the Swan River.  In fact the black swan is the symbol of Western Australia (WA), appearing on her State flag, crest, and—when WA was an independent colony—her postage stamps.

So when Nicholas Taleb, quantitative analyst and Wall Street trader, published his bestselling The Black Swan: The Impact of the Highly Improbable in 2007, many readers sent him pictures of black swans and he did concede that “after the discovery of Australia, people in the Old World” were “no longer convinced that all swans were white.”  But he continued (and still does) to use the term Black Swan (always capitalized) to indicate events that have the characteristics of “rarity, extreme impact, and retrospective (though not prospective) predictability.”  This is despite the fact that researchers in the areas of future studies and the future security environment have been using the term wild cards to mean the same thing for at least 50 years.  

Since card playing has traditionally been more popular than ornithology (the study of birds), the term wild cards would presumably be more easily understood as meaning unexpected events to the non-business-book-reading public.  A more sophisticated term that has been used almost synonymously with wild cards is outliers—evoking the image of points straying from a recognizable line of data on an x/y axis graph.  Outliers sounds a bit more scientific, but wild cards capture the element of surprise.  

Black Swan, however, is the latest buzz word for an “unexpected” event, and it is creeping more and more into Pentagon briefings and defense-related futures analyses.  Senior officials seem to like saying “Black Swans” when referring to sudden changes in their preferred view of the international environment.  After all, business CEOs use it.   

If wild cards and outliers mean the same, why then the metaphor “Black Swan?”  As noted, black swans are perfectly predictable in Western Australia and outnumber the white, at least around Perth.  

Taleb never seems to be clear about why he chose Black Swan as his metaphor for the unpredicted.  Its origin is never really explained.  Taleb grew up in Lebanon, and I searched to find if there was some sort of Lebanese “legend of the swan” that he might have encountered when young, but found nothing. Roman, Norse, Finnish, Russian legends, yes; but not Lebanese. 

However, it is an intriguing image that grabs attention as a book title.  Maybe that is all there is to it.  

Those who have actually read the entire book—as opposed to simply using the term or skimming a few pages—know it is a rambling work that mixes together theoretical musings, practical observations, mathematic arguments, a little personal history, and sharp ridicule of people who think they can forecast the future.  Taleb writes in a puckish tone and is self-deprecating, so the fact that much of the book appears as ideas cobbled from the back of envelopes without a tight sequence only starts to really get to the reader at about the mid-way point.  After that all the observations seem like a ping-pong match.  The book could have used a lot more editing in format, rather than just style (if it did).

So why do people read (or at least buy) the book?  Why wasn’t it given a higher dose of editing by Random House?  And why do people like to use the Black Swan term?  

Because Taleb purportedly made a ton of money on Wall Street by betting against expert market predictions.  How much money he won’t reveal, but apparently enough not to have to work anymore, to have homes in New York and elsewhere, and to afford to be a part-time professor who can pick and choose what to research or teach.  People pay a lot for his advice in investing.  Other traders believe that he has indeed made a ton of money, and when people believe you’ve made a ton of money on Wall Street, they want to read your book to find your secret.  Since Taleb believes in randomness, luck and the unintended consequence of logical choices, the secret seems that he doesn’t have a secret except being very, very skeptical and having the ability to calculate numbers very, very well.

In academic environments, his skepticism would be referred to as empiricism.  Being a self-proclaimed empiricist “quant” (Wall Street-ese for an extreme quantitative analyst) with an research background in higher level math, it may be that his familiarity with social science-based applied futures research is, by choice, not extensive (although he is well read in philosophy and classical writers such as Cicero).  After all, he believes in high randomness, and futures researchers assume some predictability.  Hence, the setting aside of wild card—a term never once used in the book. 

Maybe there is more to the popular allure of the Black Swan term.  Black Swan…the image is peaceful and, if you come across an unexpected event that derails your plan, you can almost feel sanguine or relaxed about it.  

Wild card…that is a jarring image, as if something shocking should have been expected, since there are at least two wild cards in every pack. Wild card evokes a rampaging bull that knocks over finely crafted strategies in the china shop of foreign policy.  A black swam merely sails serenely through.  

Which of these images would be appropriate for an unanticipated occurrence that prompts a lot of violence and kills a lot of people?  Personally, I didn’t find black swans particularly threatening, although they will bite if you get close to their young cygnets—which, by the way, are born greyish-white and turn black.  I fear what a wild card might do to my nation, or the rest of the world.    

There’s even a bigger problem with using the term in a Pentagon context.  Taleb thinks that our attempts to forecast creates such blindness to the fact that our forecasts might not be accurate, that we take actions that make situations far worse.  And he applies that to everything, including the study of war.  He maintains: “What is surprising is not the magnitude of our forecast errors, but our absence of awareness of it.  This is all more worrisome when we engage in deadly conflicts: wars are fundamentally unpredictable (and we do not know it).”

The irony of senior defense officials enamored by the Black Swan term should be obvious; its creator and proponent sees wars as unpredictable and planning for war dangerous.  

There are similarly discontinuities throughout the book; planning is portrayed as effective if the plans are directed towards the normal, but generally ineffective if focused on the improbable.  However, the improbable (Black Swans) wrecks planning for the normal.  How does Taleb square this circle?  He doesn’t.  Taleb has contempt for those who try to detect the improbable.  As he puts it: “Our inability to predict in environments subjected to the Black Swan, coupled with a general lack of awareness of this state of affairs, means that certain professionals, while believing they are experts, are in fact not.  Based on their empirical record, they do not know more about their subject matter than the general population, but they are much better at narrating—or, worse, at smoking you with complicated mathematical models.  They are also more likely to wear a tie.”          

I too am skeptical of the reliability of mathematical models, but forecasting has high success when it is based on an understanding of human nature and the influence of culture.  And war is part of human nature (and of some cultures more than others), even if some wish it were not and some pretend it is not. 

Part of the problem between rectifying Taleb’s views with the strategist’s task of preparing for potential wars is in defining the terms “prediction” and “forecast,” which Taleb uses interchangeably.  Taleb seems to think that both predictions and forecasts are meant to be precise and temporally exact.  Perhaps this is the expectation in the financial world.  

In the world of national security planning, however--and particularly in future security environment assessments--reasonable (and humble) analysts do not claim to be able to determine the exact “when.”  What they are examining are the trends that might make conflict more probable and, based on comparative capabilities, what that conflict might look like.  That is what would be considered a forecast.  Few would gamble on an exact prediction.  

Forecasting in military planning actually does have a pretty good empirical record.  Take the attack on Pearl Harbor, as an example.  No one predicted far in advance that the Imperial Japanese Navy would strike at Pearl Harbor on December 7, 1941.  But the U.S. Navy had long forecast Japan as its most probable adversary and had been war-gaming the possible conflict since the 1920s.  Why?  Because Japan had demonstrated both the capacity and desire for achieving conquests in Asia.  Navy planners viewed a Pacific war against Japan as the most likely future contingency, and they were right.  

Admiral Nimitz famously remarked later that the war-gaming at the U.S. Naval War College had revealed all the elements of the war with the exception of the kamikaze and the atomic bomb.  Both can certainly be considered wild cards.  In modern analysis of the future security environment, thorough strategists try to identify such wild cards knowing that there will always be “unknown unknowns” (as then-Secretary of Defense Donald Rumsfeld put it) that we need to hedge against by developing an agile force and multilayered strategies.

So did Navy planners correctly forecast the war with Imperial Japan?  Yes.  Some even expected its start to be in the nature of a surprise attack without declaration of war—which was how Japan started the Russo-Japanese War in 1904.  Some wondered if the previous British air attack on the Italian Navy in the port of Taranto might provide them a model.  Even President Roosevelt himself was not surprised at the eventual Japanese attack—he was only surprised that they attacked at Pearl Harbor.  When he got the initial word, he is reported to have said, “This must be wrong.  They must mean the Philippines.”

The message was not wrong; but Taleb is.  Wars are only unpredictable if a forecast is expected to have exact time, date and place.  And even if they were to be considered unpredictable, they still must be planned for if our society is to survive.  Planning for war is like buying life insurance: you don’t want to use it (die), you never know quite how much you should spend for it, and while you live it is “wasted,” but you know your family needs it.  And we can accurately forecast that eventually we will die.

Black Swan is a term that lulls us to sleep and suggests the inability to forecast.  “Wild card” jars us awake and makes the improbable something to seek out deep in the card deck.  We need to leave the black swans in Australia, and count cards in the Pentagon.  In war, Black Swans--or rather wild cards--are normal.