Mediocristan vs Extremistan (IM 823)

Nassim Nicholas Taleb in his book “The Black Swan” introduced the term mediocristan and extremistan. According to hime the world could be divided into the safe and comfort Mediocristan, and the unsafe and improbable Extremistan.

In, mediocristan, when the sample is large, no single instances will significantly change the aggregate or the total. Take a sample of thousand people and measure their weight or height. The weight of single individual will not affect the aggregate.

While if you take the net worth of whole sample, their total will worth very very less than the world’s richest person (say Elon Musk, who now worth $185 billion). This is extremistan. Here, inequalities are such that one single observation can disproportionally impact the aggregate.

Taleb continues: “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

A key implication of this distinction is that in Mediocristan, the overall impact of an “outlier” is not that significant relative to the total, but in Extremistan, that impact is enormous. Consequently, if we are in the domain of Extremistan, and we use analytical tools from Mediocristan for prediction, risk management, etc., we can face enormous surprises. Some of these surprises may be positive and some may be negative, but their impact will likely exceed what we are prepared for. 

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