THE S P E C U L A T O R AND T H E P R O S T I T U T E 31
Vany, an insightful and original thinker who singlemindedly studied wild
uncertainty in the movies. He showed that, sadly, much of what we ascribe
to skills is an after-the-fact attribution. The movie makes the actor,
he claims—and a large dose of nonlinear luck makes the movie.
The success of movies depends severely on contagions. Such contagions
do not just apply to the movies: they seem to affect a wide range of cultural
products. It is hard for us to accept that people do not fall in love
with works of art only for their own sake, but also in order to feel that
they belong to a community. By imitating, we get closer to others—that is,
other imitators. It fights solitude.
This discussion shows the difficulty in predicting outcomes in an environment
of concentrated success. So for now let us note that the division
between professions can be used to understand the division between types
of random variables. Let us go further into the issue of knowledge, of inference
about the unknown and the properties of the known.
SCALABILITY AND GLOBALIZATION
Whenever you hear a snotty (and frustrated) European middlebrow presenting
his stereotypes about Americans, he will often describe them as
"uncultured," "unintellectual," and "poor in math" because, unlike his
peers, Americans are not into equation drills and the constructions middlebrows
call "high culture"—like knowledge of Goethe's inspirational
(and central) trip to Italy, or familiarity with the Delft school of painting.
Yet the person making these statements is likely to be addicted to his iPod,
wear blue jeans, and use Microsoft Word to jot down his "cultural" statements
on his PC, with some Google searches here and there interrupting
his composition. Well, it so happens that America is currently far, far more
creative than these nations of museumgoers and equation solvers. It is also
far more tolerant of bottom-up tinkering and undirected trial and error.
And globalization has allowed the United States to specialize in the creative
aspect of things^ the production of concepts and ideas, that is, the
scalable part of the products, and, increasingly, by exporting jobs, separate
the less scalable components and assign them to those happy to be
paid by the hour. There is more money in designing a shoe than in actually
making it: Nike, Dell, and Boeing can get paid for just thinking, organizing,
and leveraging their know-how and ideas while subcontracted factories
in developing countries do the grunt work and engineers in cultured
and mathematical states do the noncreative technical grind. The American
32 UMBERTO E C O ' S A N T I L I B R A RY
economy has leveraged itself heavily on the idea generation, which explains
why losing manufacturing jobs can be coupled with a rising standard
of living. Clearly the drawback of a world economy where the payoff
goes to ideas is higher inequality among the idea generators together with
a greater role for both opportunity and luck—but I will leave the socioeconomic
discussion for Part Three and focus here on knowledge.
TRAVELS INSIDE MEDIOCRISTAN
This scalable/nonscalable distinction allows us to make a clear-cut differentiation
between two varieties of uncertainties, two types of randomness.
Let's play the following thought experiment. Assume that you round
up a thousand people randomly selected from the general population and
have them stand next to one another in a stadium. You can even include
Frenchmen (but please, not too many out of consideration for the others
in the group), Mafia members, non-Mafia members, and vegetarians.
Imagine the heaviest person you can think of and add him to that sample.
Assuming he weighs three times the average, between four hundred
and five hundred pounds, he will rarely represent more than a very small
fraction of the weight of the entire population (in this case, about a half of
a percent).
You can get even more aggressive. If you picked the heaviest biologically
possible human on the planet (who yet can still be called a human),
he would not represent more than, say, 0.6 percent of the total, a very negligible
increase. And if you had ten thousand persons, his contribution
would be vanishingly small.
In the Utopian province of Mediocristan, particular events don't contribute
much individually—only collectively. I can state the supreme law
of Mediocristan as follows: When your sample is large, no single instance
will significantly change the aggregate or the total. The largest observation
will remain impressive, but eventually insignificant, to the sum.
I'll borrow another example from my friend Bruce Goldberg: your
caloric consumption. Look at how much you consume per year—if you
are classified as human, close to eight hundred thousand calories. No single
day, not even Thanksgiving at your great-aunt's, will represent a large
share of that. Even if you tried to kill yourself by eating, that day's calories
would not seriously affect your yearly consumption.
Now, if I told you that it is possible to run into someone who weighs
THE S P E C U L A T O R AND T H E P R O S T I T U T E 33
several thousand tons, or stands several hundred miles tall, you would be
perfectly justified in having my frontal lobe examined, or in suggesting
that I switch to science-fiction writing. But you cannot so easily rule out
extreme variations with a different brand of quantities, to which we turn
next.
The Strange Country of Extremistan
Consider by comparison the net worth of the thousand people you lined
up in the stadium. Add to them the wealthiest person to be found on the
planet—say, Bill Gates, the founder of Microsoft. Assume his net worth to
be close to $80 billion—with the total capital of the others around a few
million. How much of the total wealth would he represent? 99.9 percent?
Indeed, all the others would represent no more than a rounding error for
his net worth, the variation of his personal portfolio over the past second.
For someone's weight to represent such a share, he would need to weigh
fifty million pounds!
Try it again with, say, book sales. Line up a thousand authors (or people
begging to get published, but calling themselves authors instead of
waiters), and check their book sales. Then add the living writer who (currently)
has the most readers. J . K. Rowling, the author of the Harry Potter
series, with several hundred million books sold, will dwarf the remaining
thousand authors with, say, collectively, a few hundred thousand readers
at most.
Try it also with academic citations (the mention of one academic by
another academic in a formal publication), media references, income,
company size, and so on. Let us call these social matters, as they are manmade,
as opposed to physical ones, like the size of waistlines.
In Extremistan, inequalities are such that one single observation can
disproportionately impact the aggregate, or the total.
So while weight, height, and calorie consumption are from Mediocristan,
wealth is not. Almost all social matters are from Extremistan. Another
way to say it is that social quantities are informational, not physical:
you cannot touch them. Money in a bank account is something important,
but certainly not physical. As such it can take any value without necessitating
the expenditure of energy. It is just a number!
Note that before the advent of modern technology, wars used to belong
to Mediocristan. It is hard to kill many people if you need to slaughter
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* I emphasize possible because the chance of these occurrences is typically in the
order of one in several trillion trillion, as close to impossible as it gets.
them one at the time. Today, with tools of mass destruction, all it takes is
a button, a nutcase, or a small error to wipe out the planet.
Look at the implication for the Black Swan. Extremistan can produce
Black Swans, and does, since a few occurrences have had huge influences
on history. This is the main idea of this book.
Extremistan and Knowledge
While this distinction (between Mediocristan and Extremistan) has severe
ramifications for both social fairness and the dynamics of events, let us see
its application to knowledge, which is where most of its value lies. If a
Martian came to earth and engaged in the business of measuring the
heights of the denizens of this happy planet, he could safely stop at a hundred
humans to get a good picture of the average height. If you live in
Mediocristan, you can be comfortable with what you have measured—
provided that you know for sure that it comes from Mediocristan. You
can also be comfortable with what you have learned from the data. The
epistemological consequence is that with Mediocristan-style randomness
it is not possible* to have a Black Swan surprise such that a single event
can dominate a phenomenon. Primo, the first hundred days should reveal
all you need to know about the data. Secondo, even if you do have a surprise,
as we saw in the case of the heaviest human, it would not be consequential.
If you are dealing with quantities from Extremistan, you will have
trouble figuring out the average from any sample since it can depend so
much on one single observation. The idea is not more difficult than that.
In Extremistan, one unit can easily affect the total in a disproportionate
way. In this world, you should always be suspicious of the knowledge you
derive from data. This is a very simple test of uncertainty that allows you
to distinguish between the two kinds of randomness. Capish?
What you can know from data in Mediocristan augments very rapidly
with the supply of information. But knowledge in Extremistan grows
slowly and erratically with the addition of data, some of it extreme, possibly
at an unknown rate.
THE S P E C U L A T O R AND T H E P R O S T I T U T E 35
Wild and Mild
If we follow my distinction of scalable versus nonscalable, we can see clear
differences shaping up between Mediocristan and Extremistan. Here are a
few examples.
Matters that seem to belong to Mediocristan (subjected to what we call
type 1 randomness): height, weight, calorie consumption, income for a
baker, a small restaurant owner, a prostitute, or an orthodontist; gambling
profits (in the very special case, assuming the person goes to a casino and
maintains a constant betting size), car accidents, mortality rates, "IQ" (as
measured).
Matters that seem to belong to Extremistan (subjected to what we call
type 2 randomness): wealth, income, book sales per author, book citations
per author, name recognition as a "celebrity," number of references on
Google, populations of cities, uses of words in a vocabulary, numbers of
speakers per language, damage caused by earthquakes, deaths in war,
deaths from terrorist incidents, sizes of planets, sizes of companies, stock
ownership, height between species (consider elephants and mice), financial
markets (but your investment manager does not know it), commodity
prices, inflation rates, economic data. The Extremistan list is much longer
than the prior one.
The Tyranny of the Accident
Another way to rephrase the general distinction is as follows: Mediocristan
is where we must endure the tyranny of the collective, the routine,
the obvious, and the predicted; Extremistan is where we are subjected to
the tyranny of the singular, the accidental, the unseen, and the unpredicted.
As hard as you try, you will never lose a lot of weight in a single
day; you need the collective effect of many days, weeks, even months.
Likewise, if you work as a dentist, you will never get rich in a single
day—but you can do very well over thirty years of motivated, diligent, disciplined,
and regular attendance to teeth-drilling sessions. If you are subject
to Extremistan-based speculation, however, you can gain or lose your
fortune in a single minute.
Table 1 summarizes the differences between the two dynamics, to
which I will refer in the rest of the book; confusing the left column with
the right one can lead to dire (or extremely lucky) consequences.
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TABLE 1
Mediocristan Extremistan
Nonscalable Scalable
Mild or type 1 randomness
The most typical member is mediocre
Winners get a small segment of the total
pie
Example: audience of an opera singer
before the gramophone
More likely to be found in our ancestral
environment
Impervious to the Black Swan
Subject to gravity
Corresponds (generally) to physical
quantities, i.e., height
As close to Utopian equality as reality
can spontaneously deliver
Total is not determined by a single instance
or observation
When you observe for a while you can
get to know what's going on
Tyranny of the collective
Easy to predict from what you see
and extend to what you do not see
History crawls
Events are distributed* according to
the "bell curve" (the GIF) or its variations
Wild (even superwild) or type 2
randomness
The most "typical" is either giant or
dwarf, i.e., there is no typical member
Winner-take-almost-all effects
Today's audience for an artist
More likely to be found in our modern
environment
Vulnerable to the Black Swan
There are no physical constraints on
what a number can be
Corresponds to numbers, say, wealth
Dominated by extreme winner-takeall
inequality
Total will be determined by a small
number of extreme events
It takes a long time to know what's
going on
Tyranny of the accidental
Hard to predict from past information
History makes jumps
The distribution is either Mandelbrotian
"gray" Swans (tractable scientifically)
or totally intractable Black Swans
* What I call "probability distribution" here is the model used to calculate the odds of different
events, how they are distributed. When I say that an event is distributed according to the "bell
