Mediocristan vs. Exstremistan

Nassim Nicholas Taleb is the author of The Black Swan, one of the most influential books of the past 50 years. The book is concerned with randomness and uncertainty, and our chronic inability to accurately fathom and measure these phenomena. According to Taleb, a Black Swan event is one that is unpredictable yet has wide-spread ramifications. This article is about Mediocristan vs. Exstremistan and why understanding the difference between the two is crucial.

In his book The Black Swan, Nassim Taleb develops two ideas, Mediocristan and Extremistan, tohelp explain his Black Swan Theory.

Mediocristan is where normal things happen, things that areexpected, whose probabilities of occurring are easy to compute, and whoseimpact is not terribly huge. The bell curve and the normal distribution areemblems of Mediocristan. For those not very familiar with statistics, the bellcurve represents the normal distribution, where small, low-impact changes havethe highest probabilities of occurring, and huge, wide-impact changes have avery small probability of occurring.

Nature is full of things that follow a normal distribution.Peoples heights follow a normal distribution. Imagine yourself walking downthe street. If you see ten people, the odds are that most of them will be veryclose to average height, with only a small number being very short or verytall. This is a normal distribution.

Mediocristan therefore constitutes the normal, the easy topredict, the expected, the small impact, the mundane.

Exstremistan is a different beast. In Extremistan, nothingcan be predicted accurately and events that seemed unlikely or impossible occurfrequently and have a huge impact. Black Swan events occur in Exstremistan.

Think of income distributions. Most people make close to anaverage salary, some people make less, but a few people make a huge amount. Ifyou tried to calculate an average salary, the highest incomes (the milliondollar salaries) would have a disproportionate effect on the average. Toillustrate further, imagine a room full of 30 random people. If you askedeveryone their salary and calculated the average, the odds are the averagewould seem pretty reasonable. However, if you added Bill Gates to the room andthen calculated the average salary, your average would jump up by a hugemargin. One observation had a disproportionate effect on the average. This isExstremistan.

Things like book sales, whether a movie becomes a hit, or aviral video on the internet all have similar characteristics, and thereforereside in Extremistan.

You may be thinking, so what? Well, the problem is thatpeople tend to think that most things fall into the Mediocristan category, thatthey are normal, can be predicted and have a regular, known probability ofoccurring, and will not have a drastic impact. We have a tendency to think thatchange occurs smoothly and incrementally. This is Mediocristan.

Taleb believes that the most important events, the ones thatwerent expected and have a huge impact (Black Swan events, basically), fallinto the Exstremistan category, and these events happen much more often thanpeople realize. If you think about it, there are plenty of things that fit thisidea. The financial crisis, the housing crash, and major worldwide historicalevents like 9-11 all fit the mold. People tend to think that these types ofchanges happen slowly and smoothly, but in reality, they can happen verysuddenly, without warning, and can have a drastic impact that is felteverywhere.

Talebuses these idea of Mediocristan vs Exstremistan to illustrate the importance ofBlack Swan events. The Black Swans are not predictable, but they have a hugeimpact and they happen much more often than most people realize. The morequickly you understand the importance of Exstremistan and Black Swan events,the more protected you can become from their negative consequences.