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Books to Read (3) – The Black Swan

January 18, 2009 at 15:36
filed under read
Tagged books

A fierce critic of portfolio theory, Nassim Nicholas Taleb’s investment company is rumored to have made about 500 Million during the peak of the financial crisis of the Fall 2008. And this, in his words, after he ‘made fuck you money during the 1987 crash’, enough so he could solely concentrate on exploring the central idea of his work, which has brought him to writing ‘The Black Swan: the Impact of the Highly Improbable”.

A fascinating read, I highly suggest it to anyone ready to be challenged about how they look at the world, and specifically how the narrative of history is shaped. While this might sound like some basic epistemology, Taleb presents his arguments in a very interesting read with easy to grasp demonstrations. The title of the book comes from the fact that for centuries, perhaps millennia, Europeans believed all swans to be white since this was the only occurrence they encountered. Once they traveled to Australia and saw one single black swan, all this knowledge which had been validated over and over was refuted. Of course, taking this argument to its conclusion we realize that we can never proove that something does not exist

Taleb’s central idea is similar to this example in as much as he proposes that all of history’s significant events are ‘black swans’, i.e. events that are highly improbable and that we cannot foresee yet have the biggest influence on our lives and understanding of how the world functions. He cites such contemporary examples such as the internet, the laser, the success of Harry Potter books, the outcome of wars, none of which were or could have been predicted.

here are a few other of his interesting ideas:

• The difference between the absence of evidence and the evidence of absence. Say your doctor screens you for cancer and finds nothing. This is the absence of evidence, yet your doctor comes out and tells you “you don’t have cancer”, which is confusing since the absence of evidence leads him to assume the evidence of absence. Cancer cells were not detected yet this does not imply that there are none, simply that they were not detected. This is a critical distinction on how we shape our knowledge and view of the World.
• One may have a million ways to explain things, but the true explanation is unique, whether or not it is within our reach.
• Our tendency to mistake the map for the territory, what he calls ‘Platonicity’.

Yogi Berra’s “It is tough to make predictions, especially about the future” ressonate well with Taleb’s distrust, hatred even, of the charlatans of predictions, which are in for a rough ride in this book. These include risk analyst, statisticians and economists – at least those that venture on the slippery slope of predictions, of which I do no claim to be a part of, since, to paraphrase Taleb on this point, predictions imply knowledge today of tomorrow’s outcome, hence the expectation of the future becomes today’s expectation. It was interesting to read the response of the Editors of the American Statistician to Taleb’s attacks and how they still felt that the Black Swan was worthwhile read.

In no way do I claim to have made justice to Taleb’s work in such a short post but if you’re a sceptic of simple black & white renderings of the complexity of life and/or feel ready for some out-of-the-box thinking, pick up this book and you won’t regret the ride.

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