Scalable or Non-scalable

One of the concepts I was introduced to in Nicholas Taleb’s The Black Swan that I’ve found particularly apt as it applies to my life is the idea of professions being either “scalable” or “non-scalable.”

Non-scalable professions are defined as those with a built-in cap on how much one can earn in pursuing them. A dentist’s recompense is directly related to the number of people he can see in a day, and that number is limited. A watch repairman’s income is likewise related to the number of watches he can repair in a day. Both examples require the worker to be physically present to perform the services they provide. Obviously this category includes all “regular” jobs that pay hourly or salaried wages. When you agree to the hourly rate or the salary, you are in essence capping the amount of income you will receive. Revenue depends on your continuous efforts in the job. This kind of work is largely predictable and, according to Taleb, not Black- Swan driven. They belong to a place he calls “Mediocristan.”

Scalable professions, on the other hand, are those which have no such cap, where you do the same amount of work for one person as you do for one million. Like, say, writing a novel. (grin) Other professions in this category would be entrepreneurial activities, scientific research, venture capitalists, stock traders, etc. The quality of your decisions is more important then the continuity of your efforts. These sorts of professions belong in the land of “Extremistan.”

“A scalable profession,” says Taleb, “is good only if you succeed.”

“They are competitive, produce monstrous inequities and are far more random, with huge disparities between efforts and rewards — a few can take a large share of the pie, leaving others out entirely, through no fault of their own.”

Furthermore, scalable professions, such as book writing or movie making are vulnerable to what Taleb calls “contagion” which is a fancy word meaning everyone is  jumping on the bandwagon because everyone else is doing it. Everyone is reading it, seeing it, so I want to, too. Maybe out of curiosity, maybe so I can know what they’re talking about and give my opinion, maybe, as Taleb suggests, because I feel like I belong to something, since it’s by imitating, (so he says) that we get closer to others.

The contagion concept is only an entertaining side issue, though. I’m more interested in the “monstrous inequities,” which  Taleb says is largely a result of our globalization and ability to record, print, communicate, mass produce and market certain products. He used the following thought experiments regarding two different types of randomness to make his point.

Take a thousand, randomly selected people and add in someone who weighs three times the average. He will account only for about a half a percent of the weight of the entire population. Even if you took the heaviest biologically possible person, he would still only represent a tiny fraction of the whole. That’s a non-scalable comparison. In Mediocristan, “when your sample is large, no single instance will significantly change the aggregate or total.” In other words, “particular events don’t contribute much individually — only collectively.”

In contrast, consider the net worth of the thousand people just weighed. Add to them the net worth of Bill Gates (approx $80 billion according to Taleb at the time of writing). Of the combined wealth of the thousand and one in our sample, Gates’s fortune represents 99.9% of it.

That’s a huge — extreme — difference!

Taleb also used the illustration of book sales, so of  course I couldn’t leave that out. This time you randomly select 1000 authors. If you add in J.K. Rowling, who at the time of writing had sold several hundred million Harry Potter books, her record buries that of the other thousand authors who collectively have a few hundred thousand readers at most. This is Extremistan.

This same extreme discrepancy can also be found in academic citations, media references, income, elections, etc. Taleb calls them “social matters” because they are man-generated and informational, rather than things dependent on the limitations of the physical.

“In Extremistan, the inequalities are such that one single observation can disproportionately impact the aggregate, or the total.”

Which is probably why a lot of people think that writers in general make a lot of money!

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