§ion=&combo2=&text1=&text2=&SocNetUsername=&SocNetPassword=&authCode=& 7th Decade Thoughts: The Black Swan: The Impact of the Highly Improbable by Nassim Nicholas Taleb

7th Decade Thoughts

Thoughts about books, politics and history (personal and otherwise), pictures I've taken and pictures I've edited.

Wednesday, May 04, 2011

The Black Swan: The Impact of the Highly Improbable by Nassim Nicholas Taleb

I highly recommend this book, though mine is a probably a very superficial review. I'm not highly knowledgeable about statistics or models, though I've had my experiences and have always been suspicious of predictions based on them. And of course I recognize that the "really big things" seem to come out of the blue. 

The main idea is relatively simple, that when we consider the universe of possibilities, we tend to focus on models and statistics that define the limits of the possible and to ignore the outliers. His initial example was from the point of view of the pig, which every morning for 1000 days, got a big breakfast and was left to wallow, and so defined reality in terms of its experience--until suddenly one morning it's slaughtered for bacon. He likens the pig's surprise with our surprise at the stock market crash of 1986 or 911. (The book was written before the current financial crisis and before the Japanese earthquake/tsunami.) And he talks about the danger of discounting those events that lie outside of our mathematical models and normal ways of planning for the future.

Amazon's description of the book is better than mine: "A black swan is an event, positive or negative, that is deemed improbable yet causes massive consequences."

I like it because I can't help but notice that everyone who predicts the future (including me) is wrong--maybe not completely wrong but they usually miss the really big things--and yet we don't really consider the range of what might happen, only what seems likely to happen. We tend to be like the pig who was totally blindsided by his ultimate fate. The discussion of how to build nuclear plants in the wake of Fukishima seems a case in point. In any one location, it's not all that hard to consider a range of possible events to protect against, but protecting against the really big event? In the wake of current tornadoes, I hear planning to prevent future damage as if it really were possible to contain the tornado (or other weather) danger. Clearly what we usually do, is plan for a range of possibilities and assign the others to the realm of the nearly impossible. Taleb is arguing that we do ourself a huge disservice by discounting the outlying possibilities.

Taleb himself is definitely present in the book which one doesn't expect. We learn a lot about him personally and his origins in a small village in Lebanon. His jokes are not always funny. You sometimes feel embarrassed by his combination of arrogance and transparency. But he didn't totally turn me off because I think he's made a career of not fitting in because he's attuned to truths that others don't even consider. He's particularly hard on the financial world.


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