bedside for a while.
Nero and Yevgenia were, in a sense, like night and day. Yevgenia went
to bed at dawn, working on her manuscripts at night. Nero rose at dawn,
like most traders, even on weekends. He then worked for an hour on his
opus, Treatise on Probability, and never touched it again after that. He
had been writing it for a decade and felt rushed to finish it only when his
life was threatened. Yevgenia smoked; Nero was mindful of his health,
spending at least an hour a day at the gym or in the pool. Yevgenia hung
around intellectuals and bohemians; Nero often felt comfortable with
street-smart traders and businessmen who had never been to college and
spoke with cripplingly severe Brooklyn accents. Yevgenia never understood
how a classicist and a polyglot like Nero could socialize with people
like that. What was worse, she had this French Fifth Republic overt dis9
6 UMBERTO E C O ' S A N T I U B R A RY
dain for money, unless disguised by an intellectual or cultural fa?ade, and
she could hardly bear these Brooklyn fellows with thick hairy fingers and
gigantic bank accounts. Nero's post-Brooklyn friends, in turn, found her
snotty. (One of the effects of prosperity has been a steady migration of
streetwise people from Brooklyn to Staten Island and New Jersey.)
Nero was also elitist, unbearably so, but in a different way. He separated
those who could connect the dots, Brooklyn-born or not, from those
who could not, regardless of their levels of sophistication and learning.
A few months later, after he was done with Yevgenia (with inordinate
relief) he opened IV deserto and was sucked into it. Yevgenia had the prescience
that, like her, Nero would identify with Giovanni Drogo, the main
character of 17 deserto. He did.
Nero, in turn, bought cases of the English (bad) translation of the book
and handed copies to anyone who said a polite hello to him, including his
New York doorman who could hardly speak English, let alone read it.
Nero was so enthusiastic while explaining the story that the doorman got
interested and Nero had to order the Spanish translation for him, El desierto
de los tartaros.
Bleed or Blowup
Let us separate the world into two categories. Some people are like the
turkey, exposed to a major blowup without being aware of it, while others
play reverse turkey, prepared for big events that might surprise others.
In some strategies and life situations, you gamble dollars to win a succession
of pennies while appearing to be winning all the time. In others, you
risk a succession of pennies to win dollars. In other words, you bet either
that the Black Swan will happen or that it will never happen, two strategies
that require completely different mind-sets.
We have seen that we (humans) have a marked preference for making
a little bit of income at a time. Recall from Chapter 4 that in the summer
of 1982, large American banks lost close to everything they had ever
earned, and more.
So some matters that belong to Extremistan are extremely dangerous
but do not appear to be so beforehand, since they hide and delay their
risks—so suckers think they are "safe." It is indeed a property of Extremistan
to look less risky, in the short run, than it really is.
Nero called the businesses exposed to such blowups dubious businesses,
particularly since he distrusted whatever method was being used to
LIVING IN THE A N T E C H A M B E R OF HOPE 9 7
compute the odds of a blowup. Recall from Chapter 4 that the accounting
period upon which companies' performances are evaluated is too short to
reveal whether or not they are doing a great job. And, owing to the shallowness
of our intuitions, we formulate our risk assessments too quickly.
I will rapidly present Nero's idea. His premise was the following trivial
point: some business bets in which one wins big but infrequently, yet
loses small but frequently, are worth making if others are suckers for them
and if you have the personal and intellectual stamina. But you need such
stamina. You also need to deal with people in your entourage heaping all
manner of insult on you, much of it blatant. People often accept that a financial
strategy with a small chance of success is not necessarily a bad one
as long as the success is large enough to justify it. For a spate of psychological
reasons, however, people have difficulty carrying out such a strategy,
simply because it requires a combination of belief, a capacity for
delayed gratification, and the willingness to be spat upon by clients without
blinking. And those who lose money for any reason start looking like
guilty dogs, eliciting more scorn on the part of their entourage.
Against that background of potential blowup disguised as skills, Nero
engaged in a strategy that he called "bleed." You lose steadily, daily, for a
long time, except when some event takes place for which you get paid disproportionately
well. No single event can make you blow up, on the other
hand—some changes in the world can produce extraordinarily large profits
that pay back such bleed for years, sometimes decades, sometimes even
centuries.
Of all the people he knew, Nero was the least genetically designed for
such a strategy. His brain disagreed so heavily with his body that he found
himself in a state of continuous warfare. It was his body that was his problem,
which accumulated physical fatigue from the neurobiological effect
of exposure to the small continuous losses, Chinese-water-torture-style,
throughout the day. Nero discovered that the losses went to his emotional
brain, bypassing his higher cortical structures and slowly affecting his hippocampus
and weakening his memory. The hippocampus is the structure
where memory is supposedly controlled. It is the most plastic part of the
brain; it is also the part that is assumed to absorb all the damage from repeated
insults like the chronic stress we experience daily from small doses
of negative feelings—as opposed to the invigorating "good stress" of the
tiger popping up occasionally in your living room. You can rationalize all
you want; the hippocampus takes the insult of chronic stress seriously, incurring
irreversible atrophy. Contrary to popular belief, these small, seem9
8 UMBERTO E C O ' S A N T I U B R A RY
ingly harmless stressors do not strengthen you; they can amputate part of
your self.
It was the exposure to a high level of information that poisoned Nero's
life. He could sustain the pain if he saw only weekly performance numbers,
instead of updates every minute. He did better emotionally with his
own portfolio than with those of clients, since he was not obligated to
monitor it continuously.
If his neurobiological system was a victim of the confirmation bias, reacting
to the short term and the visible, he could trick his brain to escape
its vicious effect by focusing only on the longer haul. He refused to look at
any printout of his track record that was shorter than ten years. Nero
came of age, intellectually speaking, with the stock market crash of 1987,
in which he derived monstrous returns on what small equity he controlled.
This episode would forever make his track record valuable, taken as a
whole. In close to twenty years of trading, Nero had only four good years.
For him, one was more than enough. All he needed was one good year per
century.
Investors were no problem for him—they needed his trading as insurance
and paid him well. He just had to exhibit a mild degree of contempt
toward those he wanted to shed, which did not take much effort on his
part. This effort was not contrived: Nero did not think much of them and
let his body language express it freely, all the while maintaining an unfashionably
high level of courtesy. He made sure, after a long string of losses,
that they did not think he was apologetic—indeed, paradoxically, they became
more supportive that way. Humans will believe anything you say
provided you do not exhibit the smallest shadow of diffidence; like animals,
they can detect the smallest crack in your confidence before you express
it. The trick is to be as smooth as possible in personal manners. It is
much easier to signal self-confidence if you are exceedingly polite and
friendly; you can control people without having to offend their sensitivity.
The problem with business people, Nero realized, is that if you act like a
loser they will treat you as a loser—you set the yardstick yourself. There
is no absolute measure of good or bad. It is not what you are telling people,
it is how you are saying it.
But you need to remain understated and maintain an Olympian calm
in front of others.
When he worked as a trader for an investment bank, Nero had to face
the typical employee-evaluation form. The form was supposed to keep
track of "performance," supposedly as a check against employees slacking
LIVING IN T H E A N T E C H A M B E R OF HOPE 9 9
off. Nero found the evaluation absurd because it did not so much judge
the quality of a trader's performance as encourage him to game the system
by working for short-term profits at the expense of possible blowups—
like banks that give foolish loans that have a small probability of blowing
up, because the loan officer is shooting for his next quarterly evaluation.
So one day early in his career, Nero sat down and listened very calmly to
the evaluation of his "supervisor." When Nero was handed the evaluation
form he tore it into small pieces in front of him. He did this very slowly,
accentuating the contrast between the nature of the act and the tranquillity
with which he tore the paper. The boss watched him blank with fear, eyes
popping out of his head. Nero focused on his undramatic, slow-motion
act, elated by both the feeling of standing up for his beliefs and the aesthetics
of its execution. The combination of elegance and dignity was exhilarating.
He knew that he would either be fired or left alone. He was left
alone.
Chapter Eight
GIACOMO CASANOVA'S UNFAILING
LUCK: THE PROBLEM OF SILENT EVIDENCE
The Diagoras problem—How Black Swans make their way out of history
books—Methods to help you avoid drowning—The drowned do not
usually vote—We should all be stockbrokers—Do silent witnesses count?—
Casanova's étoile—New York is "so invincible"
Another fallacy in the way we understand events is that of silent evidence.
History hides both Black Swans and its Black Swan-generating ability
from us.
THE STORY OF THE DROWNED WORSHIPPERS
More than two thousand years ago, the Roman orator, belletrist, thinker,
Stoic, manipulator-politician, and (usually) virtuous gentleman, Marcus
Tullius Cicero, presented the following story. One Diagoras, a nonbeliever
in the gods, was shown painted tablets bearing the portraits of some worshippers
who prayed, then survived a subsequent shipwreck. The implication
was that praying protects you from drowning. Diagoras asked,
"Where were the pictures of those who prayed, then drowned?"
The drowned worshippers, being dead, would have a lot of trouble advertising
their experiences from the bottom of the sea. This can fool the
casual observer into believing in miracles.
GIACOMO CASANOVA'S UNFAILING LUCK 1 01
We call this the problem of silent evidence. The idea is simple, yet potent
and universal. While most thinkers try to put to shame those who
came before them, Cicero puts to shame almost all empirical thinkers who
came after him, until very recently.
Later on, both my hero of heroes, the essayist Michel de Montaigne
and the empirical Francis Bacon, mentioned the point in their works, applying
it to the formation of false beliefs. "And such is the way of all superstition,
whether in astrology, dreams, omens, divine judgments, or the
like," wrote Bacon in his Novum Organum. The problem, of course, is
that unless they are drilled into us systematically, or integrated into our
way of thinking, these great observations are rapidly forgotten.
Silent evidence pervades everything connected to the notion of history.
By history, I don't just mean those learned-but-dull books in the history
section (with Renaissance paintings on their cover to attract buyers). History,
I will repeat, is any succession of events seen with the effect of posteriority.
This bias extends to the ascription of factors in the success of ideas and
religions, to the illusion of skill in many professions, to success in artistic
occupations, to the nature versus nurture debate, to mistakes in using
evidence in the court of law, to illusions about the "logic" of history—
and of course, most severely, in our perception of the nature of extreme
events.
You are in a classroom listening to someone self-important, dignified,
and ponderous (but dull), wearing a tweed jacket (white shirt, polka-dot
tie), pontificating for two hours on the theories of history. You are too paralyzed
by boredom to understand what on earth he is talking about, but
you hear the names of big guns: Hegel, Fichte, Marx, Proudhon, Plato,
Herodotus, Ibn Khaldoun, Toynbee, Spengler, Michelet, Carr, Bloch,
Fukuyama, Schmukuyama, Trukuyama. He seems deep and knowledgeable,
making sure that no attention lapse will make you forget that his approach
is "post-Marxist," "postdialectical," or post-something, whatever
that means. Then you realize that a large part of what he is saying reposes
on a simple optical illusion! But this will not make a difference: he is so invested
in it that if you questioned his method he would react by throwing
even more names at you.
It is so easy to avoid looking at the cemetery while concocting historical
theories. But this is not just a problem with history. It is a problem with
the way we construct samples and gather evidence in every domain. We
shall call this distortion a bias, i.e., the difference between what you see
1 0 2 UMBERTO E C O ' S A N T I U B R A RY
and what is there. By bias I mean a systematic error consistently showing
a more positive, or negative, effect from the phenomenon, like a scale that
