The Big Idea: A Black Swan is an outlier event with low probability and extreme impact. We act as if Black Swans do not exist, but, even though they are impossible to predict, they occur with regularity.

A black swan has three traits: it’s an outlier, it carries an extreme impact, it is explainable after the fact.

Forecasting the future, given knowledge of the past, is dangerous.

From the point of view of a turkey living on a turkey farm, Thanksgiving is a black swan.

Why are we vulnerable to black swans? The error of confirmation (billionaire drop outs), the narrative fallacy (anecdotal evidence, stories stick), history jumps not crawls, history distorts silent evidence (eg. survivorship bias), and tunneling (overreliance on math models instead of observation).

Mediocristan is a world of normal distribution. Extremistan is a world where Black Swans are possible. Most of our world is actually Extremistan (net worth), though we behave as if it’s mostly Mediocristan (height).

We should try to turn black swans (unknown unknowns) into grey swans (known unknowns) by developing humility, awareness, and resilience. To turn Black Swans into Grey Swans, consider the future to be based on Mandelbrotian Randomness.

Take advantage of positive Black Swans and reduce your exposure to negative Black Swans. For example, keep 85% of your worth in low risk assets like cash, unexposed to Black Swans and keep 15% of your assets in high-risk assets like early-stage startups.