The Black Swan: The Impact of the Highly Improbable [Hardcover]

 

 

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Do you agree that being hit with a tsunami has a totally different effect from a normal high tide? If so, you'll be glad that Professor Taleb has decided to point out that all tsunamis (low probability, high impact events) need special attention, even if they occur infrequently. His advice: Minimize exposure to large potentially harmful events while taking maximum exposure to large potentially helpful events.

I was particularly thrilled to see that Professor Taleb points out the foolishness of economists in preparing theories without checking the data to see if the theories work in practice . . . the greater foolishness of the Nobel committee granting prizes for such work . . . and the greatest foolishness of relying on the advice of such economists.

Why all the fuss? Many phenomena display high predictability and the differences from the average usually don't make all that much difference to you and me (that quality is captured by a statistical display called a bell curve where most cases cluster near the average and vary symmetrically from the average). But in some cases, there are rare events that change the reality so strongly (like a tsunami can do on the negative side or a selection as an Oprah book of the month can do on the positive side) that it would be the height of foolishness to ignore the possibilities.

When it comes to assets, wealth, book sales, athlete pay, and lots of other places where there is lots of competition, there are geometric rewards for a few while the mass do poorly. These are long-tail events (the way statisticians talk about lots of variation from the norm). But almost all human decision making assumes that there is little variation from the norm.

The book concentrates on helping you understand why such a potentially harmful bias exists (brain structure plays a large role). We also assume a continuance of what's in front of us, even when there's obvious evidence to the contrary.

I was pleased to see these descriptions. I constantly run into the same problem with executives who are subject to stalled thinking and don't see opportunities right under their noses to accomplish 20 times as much. I liked Professor Taleb's points about overcoming our ignorance of antiknowledge . . . our tendency to discount what we haven't experienced or measured. I frequently see executives estimate that the best anyone will ever do at a level that someone already exceeded in 1880. In fact, in many important areas such as herbal health remedies, our actual knowledge is receding very rapidly, turning into antiknowledge.

To help break you free of how you think now, he uses a metaphor (a black swan -- is that really a swan?) and new terms (Mediocristan -- where the bell curve is the right way to think about things and Extremistan -- where powerful in effect black swans lurk). I found this tendency to be both helpful and not. It made it clearer to me what he was talking about the first time, and then made things seem muddier after that.

I suspect that for most people, the metaphor itself will be the biggest problem. Do you really care about black swans, per se? I don't. I think Professor Taleb would have done better to use two metaphors (one positive -- perhaps like formation and attraction of wealth to the Bill and Melinda Gates foundation and the foundation's effects on world health, and the other negative -- perhaps like a tsunami) than to focus on one that is mostly about definitions (black swan).

If you agree with Professor Taleb's main points, you will probably want to get lots of advice about how to do so. He's specific only in regard to two areas (wealth management and book publishing opportunities). That's a shame. Perhaps he will write a future book that will go more into solutions.

I was surprised to see that the book pretty much ignores the scenario work that many organizations use to identify the large impact, unlikely occurrence events and to devise strategies that work better under all possibilities. If that subject interests you, I suggest that you read books like The Art of the Long View and Inevitable Surprises by Peter Schwartz, Scenarios by Kees van der Heijdan, and The Irresistible Growth Enterprise by Carol Coles and me.

I was pleased to see that Professor Taleb also feels that many black swans can become "grey swans" by employing new prediction methods (although we cannot predict specifics, we can often predict up or down reasonably well in some situations). That has been my experience is seeing that Modern Portfolio Theory makes no sense in unsettled market conditions while more refined methods built stock-by-stock can be quite predictive over the short run in identifying over and under performers, even during unsettled market periods.

Check your models before you use them each day. Otherwise, you've just checked into work without your brains intact.

Keep your eyes and ears open whenever you are away from bell curves!

Mr. Taleb is disagreeably enamoured with his own intellect and rather disdainful of that of the rest of us. He presents as the living embodiment of the "Master of the Universe" persona depicted by Tom Wolfe in "Bonfire of the Vanities." Apparently such massive egos really do exist.

I suppose Mr. Taleb deserves kudos for tackling a topic, probability and statistics, which is most easily described in mathematical terms without once resorting to mathematical formulae and for minimizing the use of figures and graphs but any benefit is quickly nullified by Mr. Taleb's opaque writing style and his tendency to wander off into unrelated side issues. That wandering feels suspiciously like padding.

Happily, arrogance and abstruse writing does not mean Mr. Taleb is incorrect or does not have something important to say. He does. His main point, that the Gaussian (or Bell) Curve is overused which leads to damaging errors, is well taken and we can all profit from the knowledge. Plus there are a few other nuggets such as his discussion of common shortcomings in critical thinking. I might have nudged my rating up to four stars if Mr. Taleb had managed to include a few concrete examples of applying his black swan model to real, everyday situations but, alas, with one or two exceptions, they are conspicuously absent; surprising, perhaps, from an author claiming to be a "bottom-up" sceptical empiricist.

I wish I could recommend an alternate author or book that covered Mr. Taleb's topic more agreeably but I can't. Proceed with caution.

Taleb's primary thesis is that our lives are governed by black swans, the highly improbable, the circumstances that cannot be foreseen. A turkey will live its life in eager anticipation of the farmer who feeds it. In no way can it anticipate the day the farmer will decide to serve it for Thanksgiving dinner. Most of the world did not expect 9/11 or the impact it would have on their lives. J.R. Rowling could not have predicted the phenomenal success of her Harry Potter series. Mr. Taleb differentiates between those parts of our lives that are governed by mediocristan and those by extremistan. Mediocristan are those parts of our existence that fit a bell curve like who well we do on a test or our size relative to others or the time it takes to run a quarter mile compared to others. Variations from one person to another are limited by intelligence and physicality. Our income relative to others is governed by the laws of extremistan. It is not limited by any practical element. Knowing the income of one person gives no clue as the relative income of another if we take the example of me and Bill Gates or the average income of any 10,000 people if Bill Gates is included in that number. Mr. Taleb definitely provides another perspective on the world. One that's definitely worth reading.

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3.0 out of 5 stars At first I wasn't sure I was going to get through the whole thing.
After reading the Black Swan I'm not really sure what just happened. At first I wasn't sure I was going to get through the whole thing. Read more

Published 9 months ago by Jeff Nijsse

5.0 out of 5 stars A great book by a somewhat arrogant writer...
Let me begin this review by noting that Nassim Taleb is the type of author who evokes strong responses in most individuals. You either love his work or hate it. Read more

Published on Mar 7 2010 by Vangel Vesovski

1.0 out of 5 stars At times interesting, but ultimately empty of new ideas
The author is clearly a well read, well traveled and well connected individual (and he makes sure you know it!). Read more

Published on Jan 14 2010 by David L. Cauz

1.0 out of 5 stars Save your money
Unless you are masochistic and enjoy the pompous attitude and the often crude insults of the author, pass on this book. Read more

Published on July 30 2009 by Joe Btfsplk

5.0 out of 5 stars The Black Swan: The Impact of the Highly Improbabl
I was pleasantly surprised how readable the book was. Taleb has broken his theory into bite size, edible food for the brain that made the book easy to follow, put down when family... Read more

Published on Jun 25 2009 by Joe Ralko

5.0 out of 5 stars This Book Altered my View of the Financial Industry.
Although some might find the book perhaps too theoretical in nature, in my business, his approach is quite practical. Being in the finance industry, Mr. Read more

Published on Mar 10 2009 by James DiCenzo

1.0 out of 5 stars perhaps it is just a duck
This book got me fired up at the opening pages by creating the false premise that science thinks everything is predictable. Read more

Published on Feb 23 2009 by Dan Dupre

5.0 out of 5 stars Improve your odds
As an investor you are always looking to have an edge. This book opens your mine to mistakes in the stockmarket in value investing and risk vs reward of smaller stocks that... Read more

Published on April 13 2008 by Mark A. Bourdages

4.0 out of 5 stars Living Betwix and Between
Most of us are content to live within the parameters of what we think we know about our environment. Read more

Published on Feb 23 2008 by Ian Gordon Malcomson

1.0 out of 5 stars Disappointing
This book is about 300 pages too long. Read the first 5 pages, and skip the rest. The author has a very high opinion of himself.

Published on Feb 4 2008 by C. Nind

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