38 of 45 people found the following review helpful
5.0 out of 5 stars Exposes the Flawed Assumptions of the Bell Curve Nudists, Those Who Always Decide by Using Normal Distribution Models
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...
Published on Aug 13 2007 by Donald Mitchell
3 of 4 people found the following review helpful
2.0 out of 5 stars Not my kind of book
The book is very uneven. There are some very interesting sections, but unfortunately even more sections are highly repetitive, verbose, and unrelated to what the author is presumably trying to say. Instead of several hundred pages that largely repeat the same message over and over, the interesting (even though somewhat controversial) substance could be more usefully...
Published 9 months ago by Dr. Ivan Tomek
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38 of 45 people found the following review helpful
5.0 out of 5 stars Exposes the Flawed Assumptions of the Bell Curve Nudists, Those Who Always Decide by Using Normal Distribution Models,
This review is from: The Black Swan: The Impact of the Highly Improbable (Hardcover)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!
1 of 1 people found the following review helpful
4.0 out of 5 stars An interesting, but highly polemic argument (2nd edition),
This review is from: The Black Swan: Second Edition: The Impact of the Highly Improbable: With a new section: "On Robustness and Fragility" (Paperback)Taleb's book is certainly one of the most interesting books I've read in a while. In it he argues a very simple point- many things in life happen on exponential scales, and because huge events on those probability distributions are also very rare, we're ill-equipped to understand or deal with them. That's really the central point of this book and he does a very good job presenting a very forceful argument for its adoption. Taleb focuses frequently on economics and business as areas that lack such knowledge. Rightly so. For years, I could not believe that an academic discipline could even exist when it was founded on the argument that human behavior was rational. It took a psychologist to teach them it wasn't (versus them reading a psychology article or two). Clearly, we have ample evidence from all financial walks of life that markets are all but unpredictable. Financial "experts" are generally just lucky. Throw 100,000 people into business and sheer dumb luck will ensure that some will achieve regular success. Taleb says that's all well and good, but not if we start to believe that it's skill and prediction that makes the difference. Because we get fooled into thinking we can predict the future, and then 2007/8 comes along and smacks the financial world into near-oblivion.
Taleb discusses when and where Black Swans (unknown, unlikely, but powerful events) are likely to occur and what we should do about them. If they are expected to be positive (e.g., scientific discoveries) then we should do things to maximize our exposure to them (i.e., have diverse and open research groups). If they are negative, we should do things to guard ourselves against them (e.g., purchase insurance, temper average predictions, etc.). There could be more depth here, and the additional chapters of this 2nd edition to add some of that. But if you're looking for a book with specific predictions about how to live your life or conduct your finances, this isn't it.
My biggest problem with this book is the relentless polemics and strong doses of arrogance. It's ironic in many cases. Taleb repeatedly bashes financial fields (especially economics) and then turns around and says one of his biggest sources of consolation against attacking academics is that he's made far more money than them. So which is it- knowledge is key or money is key? He also bashes the social sciences at every turn. I agree that many social "sciences" are in fact social arts (most economics being a great example). They are poor at predicting and fail to use the scientific methods. But many social sciences (e.g., psychology) as well as biology (he frequently mentions evolutionary psychology positively, but somehow misses this connection in his polemics) do indeed use rigorous scientific methods and their use of the bell curve is appropriate for their measures (e.g., personality). Black Swans are most common in large, complex structures such as weather, history, or economics. Also, any good scientist should know that we never know everything, that any theory can be toppled, and to expect the unexpected from research. Taleb also attacks tenured professors, but the system of tenure allows for the open research Taleb claims as necessary for detecting or even just thinking about Black Swans. His name-dropping, of both foes and friends, is annoying and detracts from his otherwise intellectual arguments.
Overall then, I think this is a fantastic book about how we think. It's very similar to Malcolm Gladwell's or Daniel Kahneman's works on why our minds are easily fooled, only the topic is larger and more elementary (the basic nature of probability and knowledge). It's not a simple book to read, but it is engaging as the ideas within are very powerful. Unfortunately, it is marred by a deeply aggressive, reactive, and polemic style of writing. Fortunately, in the additional 2nd edition chapters, he realizes that he can make much more headway by telling researchers and practitioners when their arguments/theories/models work (i.e., when the distribution is bell curved) versus when they need to realize they aren't in Kansas anymore (i.e., exponential-type distributions with Black Swans). That approach fits much better with the human psyche and is thus a more effective way of delivering one's message. And it's how I'll wrap up this review. Buy this book if you want to know what we don't know and why that really matters. Because surprisingly, what we don't know can sometimes be much more important than what we do know!
3 of 4 people found the following review helpful
2.0 out of 5 stars Not my kind of book,
This review is from: The Black Swan: Second Edition: The Impact of the Highly Improbable: With a new section: "On Robustness and Fragility" (Paperback)The book is very uneven. There are some very interesting sections, but unfortunately even more sections are highly repetitive, verbose, and unrelated to what the author is presumably trying to say. Instead of several hundred pages that largely repeat the same message over and over, the interesting (even though somewhat controversial) substance could be more usefully communicated in about one tenth of the current length.
I am also disturbed by (occasionally personal) attacks on people who don't share the author's opinions, name dropping (which the author criticizes in others), by inaccuracies (in my view even mistakes), and ridiculous statements, probably exaggerations intended to emphasize a point. I am uncomfortable with the fact that although the book promises wide applicability of the central ideas (and I agree with that) it much too often slips into illustrating and justifying the points on examples of financial markets and achieving personal wealth.
In summary, I enjoyed the interesting points that the author makes, but the style and orientation of the book don't agree with me.
4.0 out of 5 stars Prediction is Uncertain - Even Behavioral Consistency,
This review is from: The Black Swan: Second Edition: The Impact of the Highly Improbable: With a new section: "On Robustness and Fragility" (Paperback)Imagine you are a turkey being fed comfortably on one of those mass production turkey farms. You may well assume that the good food, good company, and pleasant surroundings will go on forever. If you are a quant-savvy turkey, you might even gobble together a mathematical model that predicts good times well into the future, beyond not just Thanksgiving, but past Christmas and New Years as well. Suddenly in November, unexpectedly, with life-changing consequences...things change. You just didn't see it coming. Pass the cranberry sauce.
Financial planners, economists and other more sophisticated turkeys don't see it coming either, argues author Nassim Nicholas Taleb. His book highlights the danger of the unexpected. The unexpected will happen even if we have a comfortable model predicting only minor changes. After such a "black swan" catches us by surprise, we use our flawed hindsight to decide how we could have predicted the disaster using a better model. We are kidding ourselves, insists Taleb. We need better strategies to live in a world where truly random, unpredictable events occur. He goes to some trouble in this book, and his previous Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets, to educate us.
The flawed basis of many formal models is "the great intellectual fraud" of the bell curve. We learn that highly constrained variables like height and weight cluster around an average and that extreme variations from the average are unlikely. We just aren't going to meet anybody that's half a foot or half a mile tall. These "Mediocristan" models are fine until we misapply their assumptions to unconstrained "Extremistan" phenomena like stock values, book sales and such. We are slow to see this problem. We persistently commit the "Ludic Fallacy," clinging to our formal models because they seem more real to us than the messy, real-world events they are meant to explain. Taleb illustrates this point with examples ranging from the events of 9/11 to the "off model" problems that cost casinos money. S. I. Hyakawa warned us in the early `70s that "the map is not the territory," but we haven't learned.
Taleb also warns us of the narrative fallacy based on our love of stories. We feel we understand something when we can tell a story about why it happened--even after the fact, with only part of the relevant information. When musicians achieve fame and dramatic financial success, we backtrack through their histories, explaining success by what we see along the path. We don't see the hidden cemetery of failed garage bands and starving artists who did all the same things to no avail. Because we believe this artificial story, we don't have to face the role of randomness in success or failure. Or consider its impact on our own plans.
Taleb offers some suggestions--though fewer than I'd hoped for. He advises us to be open to positive black swans and guard against negative ones. Lending money at interest, for example, opens us only to a high impact negative. This worst case is that the borrower will go bankrupt and we won't get our money back. But the very best outcome is that the loan will be simply repaid. If the borrower's entrepreneurial effort is wildly, off-the-scale successful, the lender doesn't get any more than this. An investor, on the other hand, suffers the same risk of loss, but participates fully in an "Extemistan" success. Readers are left to ponder the implications--and perhaps to hire Taleb as an investment consultant.
Although Taleb does not venture there, some of his ideas are useful in applied psychology. Personnel tests, for example, rely on the principle of "behavioral consistency," assuming that our past actions best predict our future actions. If someone is a poor performer, the safe bet is that this person will perform poorly in future employment. This may be fit a general model, but employers--and psychologists who advise them--might consider whether we commit Taleb's fallacies. Are we so comfortable with are general predictive models, with our stories about how people "are," that we close ourselves to possible change? Wouldn't it be better to seek the occasional "gray swan" of improvement and hire the flawed job applicant? The author has convinced me that this is worth considering. My time reading this book was well spent.
One final note: The author's condescending tone has been mentioned by other reviewers. It's there all right. Yes, he is condescending. Yes, he sneers at his fellow financial analysts. Yes, his citations veer into name dropping. And, yes, he finds ways to not-so-subtly complement himself as he praises Benoit Mandelbrot. But none of this matters. Taleb's message is valuable. I recommend you ignore his tone--or perhaps even be entertained by it. Stay on task and learn something about the nature of randomness and prediction.
5.0 out of 5 stars amazing,
5.0 out of 5 stars great book,
3.0 out of 5 stars Master of the Universe,
This review is from: The Black Swan: The Impact of the Highly Improbable (Hardcover)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.
15 of 21 people found the following review helpful
5.0 out of 5 stars Compelling and radical thinker,
This review is from: The Black Swan: The Impact of the Highly Improbable (Hardcover)This is one of the titles that you shakes you by the limbs with intelligence and radical thought processes. Taleb has serious disagreements with MBA's and PH'Ds in psychology, business, finance, and socialogy, in that one cannot assume the data they study in the past can be projected forward and analyzed with the same tools.
In finance, the market is not static, and the business cycle and stock market cannot use normal distributions and curves based on time, because innovations, be them technical, financial, technological have no standard dynamics or predictable market reactions. By its very nature, the flow of dollars is unpredictable by the market participants, and the news is more propaganda than crystal ball accurate.
On the very inside of Wall Street, there are many super wealthy who will wait with infinite patience, and react with swift big bucks to take advantage of the uncertainties before John Q. Public has the slightest hint of what is really going on, and before he has the chance to adjust his portfolio. Taleb feels this is where the real players of the world navigate with tremendous results.
On a side note, if you happen to be rich and single, also pick up the best seller in the asset protection category, which doubles as a very funny dating guide, called The Professional Bachelor Dating Guide - How to Exploit Her Inner Psycho.
The Black Swan has very brilliant theories and thought packed on every page. Get it and rattle your brain some.
3 of 3 people found the following review helpful
5.0 out of 5 stars Great read,
7 of 9 people found the following review helpful
5.0 out of 5 stars The most important events in life cannot be predicted.,
This review is from: The Black Swan: The Impact of the Highly Improbable (Hardcover)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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The Black Swan: The Impact of the Highly Improbable by Nassim Nicholas Taleb (Hardcover - April 17 2007)
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