The Black Swan or rare event . . .

Wired Magazine interviewed Nicholas Taleb (Fooled by Randomness) after publication of his latest book on risk called The Black Swan. Taleb is one of my gurus, I recommend both of his books . . . here's some of the interview

Wired: If Black Swans are the crucial determining events in history, why do we think we can predict anything at all?
Taleb: After they happen, in retrospect, we think that Black Swans were predictable. We think that if we can explain why something happened in the past, we can explain what will happen in the future.

But with better models and more computational power, won't we get better at predicting Black Swans?
We know from chaos theory that even if you had a perfect model of the world, you'd need infinite precision in order to predict future events. With sociopolitical or economic phenomena, we don't have anything like that. And things are getting worse, not better, because the growing complexity of the world dwarfs any improvement in sophistication or computational power.

So what do we do? If we can't forecast the really important things, how do we act?
You need to ask, "If the Black Swan hits me, will it help me or hurt me?" You cannot figure out the probability of a Black Swan hitting. But if you're in a business that's prone to negative Black Swans, like catastrophe insurance, I advise you not to take your forecasting seriously — and to think about getting into a different business. You don't want to be a sucker. What you want are situations where you can have as much of the good uncertainty as possible, where nothing too bad can happen to you, and where you have what I call free options. All of technology, really, is about maximizing free options. It's like venture capital: Most of the money you make is from things you weren't looking for. But you find them only if you search.

Is one of the strengths of the American system that, relatively speaking, it's more comfortable with uncertainty?
Yes. People here aren't afraid of failure. They're willing to trade the possibility of failure for the chance at a big upside. No other country is willing to do this. What America does best is produce the ability to accept failure.