The Black Swan: The Impact Of The Highly Improbable
- Penguin Books Ltd
- Publication Date:
- 28 February 2008
- Information Theory
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Nassim Taleb is one of only a very small handful of people who recognized the major faults in the finance industry, speaking out before it collapsed.And given the subject matter this is a very entertaining book that covering a very idiosyncratic and erudite range of fields. E.g. How many quants evangelize Montaigne? This is not just about finance. It is about the history of knowledge -- or rather, the history of ignorance and uncertainty -- and what we should take from that.
Taleb is concerned with black swans, i.e., unpredictable and improbable events that have great impact. Among the examples of these he cites are the rapid spread of the Internet and the 9/11 attacks. People endeavor to explain black swans after they occur, but they cannot do so in advance. Despite the crucial effects of these events, economists and other supposed experts in prediction fail to allow for them; indeed, their theories often deny their possibility. Because of this failure, Taleb maintains that much business forecasting is useless. To him, only a few economists, e.g., Friedrich Hayek, grasp the vital importance of uncertainty and escape condemnation. Taleb extends his indictment of conventional approaches to risk, contending that the bell curve, a key tool of many standard theories, often fails to fit the actual world. He further posits that people tend not to cope with a black swan properly, tailoring their response to specific details of the incident rather than generalizing their response.
Nassim Nicholas Taleb is one of those Old World gentleman genius philosophers that used to be common but are rare these days. He is able to imagine and communicate a "big idea" that has real world utility. Not only is his big idea important, his book is literary and classical in style, like reading Michel de Montaigne's essays, the book has no genre or peer in terms of style, it's as unique as the author.Taleb's big idea, Black Swan, is subtle and seemingly inhuman, we like narratives and assurances of the unknown even if they are false; but it's also a source of freedom from the multitude of hucksters who portend to prophet the future (and profit) - if you can look at their methodology and see bell curves or straight line projections based on past performance, you know it's false, in particular the longer out it goes. It makes life much easier to sift through the garbage for the gems. There are other tricks in the book as well, like knowing the difference between scalable things (height of humans) vs exponential things (net worth of individuals) - scalable things are less prone to Black Swans while exponential things have the danger.A brilliant books by a brilliant author. He is over my head in places and I'll need to revisit sometime in the future as a reminder but this is a book for the ages. I hope Taleb writes about more practical applications such as investing, global warming, war, medicine, etc.
The author is a Lebanese expatriate who never got to go home permanently after the never-ending war in Lebanon. He graduated college in the USA, took a job as a floor trader at an investment firm, moved on to college professorships, and consultant positions. He is a theoretical Mathematician who takes a dim view of the "experts" who predict the economic markets. History is made not by the great men or the rise and fall of cultures but by outliers, Black Swans as he dubs them, which come unexpectedly, catching us unprepared, and with devastating consequences. His advice to the would-be investor in this time of risk: "I'm not telling you not to J-walk across the street, but I am asking you not to do so blindfolded". Black Swans may be inevitable, but they can make money for those who are prepared.
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