In June 2009, Nassim Taleb, author of “The Black Swan,” spoke at a meeting sponsored by the Long Now Foundation. Called “The Future Has Always Been Crazier Than We Thought,” Mr. Taleb described two worlds: Mediocristan, a world with few high-impact successes or failures, and Extremistan, a totally different place with rare occurrences that create widespread impacts. Without using the term “enterprise risk management” in an 88-minute presentation, Mr. Taleb added significant concepts to ERM.

To help us understand the two worlds, he gave an example from each. He described a health care agency that weighs 1,000 people and determines that the average weight loss with a diet plan was 34 pounds. In an effort to show greater success, the agency adds five individuals whose weight loss averaged 100 pounds. The result is quite boring. Originally, 34,000 pounds were lost. The revised loss is 34,500 pounds. The average loss rose to a mere 34.3 pounds. This is Mediocristan.

By contrast, a labor agency surveys 1,000 people and determines that the average annual income was $34,000. In an effort to show a higher standard of living, the labor agency adds an individual who earned a bonus of $100 million. Now the original $34 million income becomes $134 million and the average income soars to $134,000. This is Extremistan.

Unprepared for extreme events

The concept applies nicely to ERM. In March 2009, Business Insurance described the new value of risk mathematics. Under the 95% bell-shaped curve, we have “normal” times, or Mediocristan. But Extremistan, the 5% outside the curve, is the world of great exposure and great opportunity.

On one side, we find BP P.L.C. and an oil spill in the Gulf of Mexico. On the other are Google Inc. and Facebook Inc.

Do organizations really recognize Mr. Taleb's distinction when they deal with risk? When accepting risk in the 95% zone, an exception to expectation has little impact. When mitigating risk or pursuing opportunity in the 2.5% zones, an exception has large impact. Mr. Taleb claims decisionmakers often do not get the distinction between the two worlds. They fool themselves into believing they can predict the future. Thus, they live in the 95% world and are not ready for extreme events. Of perhaps even more impact, they do not pursue Extremistan opportunities that could change the likelihood for success and survival.

Mr. Taleb illustrates his message with a story from book publishing. He starts on a personal note with “The Black Swan.” His book sold 1.5 million copies, was translated into 27 languages and spent 17 weeks on the New York Times' best-seller list. The editor explained its success. It was successful partly or largely because it had an animal and color on the cover. Alternatively, people in Mediocristan might tell you to write a good book and people will buy it. Get a good literary agent, and promotion of the book will create a best-seller. Really?

He moves on to book publishing as an activity that involves both worlds. He cites an estimate that 200,000 books are published in the United States each year. Sales are in the range of 600 million copies or downloads. Harry Potter books averaged 60 million copies for each of the series. They accounted for 10% of sales in a release year. The top 500 best-sellers probably account for half of all sales.

The odds of making the list are 400-1.

Recognize opportunity

What does this tell us? If you follow conventional wisdom, you are in Mediocristan and you have little chance for impact. How can you increase the odds of having a best-selling book? Move into Extremistan. It does not really matter how well you write the book or who represents you if you can get on Oprah's Book Club list.

Mr. Taleb believes we cannot predict the future, but sometimes we can try to find great opportunity. Why did Apple stock rise from $36 to more than $270 a share in the past five years? It was a 600% jump when the S&P 500 was flat. The answer is innovation in Extremistan. Apple CEO Steve Jobs was not seeking small increases in quarterly earnings. Every announcement—Apple TV, iTunes, iPhone, iPod, iPad—pursued new worlds in new ways.

It can even work for companies that lack the culture to break out.

Samsung Group, recognizing it was a laggard to Sony Corp. in new product concepts, created a design center far away from the rest of the company. The result was a surge in new products, design awards and profits. Young innovators in blue jeans and T-shirts worked all hours of the day and night, judged only on their creativity.

Walt Disney Co., at the time a $34 billion conglomerate with movies, consumer products, theme parks, resorts and media services, acquired Pixar Animation Studios in 2006 after an acrimonious relationship between the companies for many years. As part of the acquisition, Disney agreed to allow Pixar to operate independently in Extremistan, or at least in Emeryville, Calif., 360 miles from Disney headquarters in Burbank. The result? The movie “Up” grossed $730 million in 2009. “Toy Story 3” did $227 million in its first two weeks. The average movie, made in Mediocristan in the period 2005 to 2009, grossed $20.6 million.

What is our conclusion? Nassim Taleb is right. The future is crazier than we think, and Mr. Taleb provides a cogent set of lessons for enterprise risk management.