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The Black Swan: The Impact of the Highly Improbable
written by Nassim Nicholas Taleb
Studio : Random House
by Random House
Release Date : 2007-04-17
Publisher : Random House
Released : 2007-04-17
Availability : Usually ships in 1-2 business days
Number of Items : 1
EAN : 9781400063512
Avg. Customer Rating: (based on 310 reviews)
List Price : $26.95
Our Price : $15.49
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Americancivilwar.com |
Bestselling author Nassim Nicholas Taleb continues his exploration of randomness in his fascinating new book, The Black Swan, in which he examines the influence of highly improbable and unpredictable events that have massive impact. Engaging and enlightening, The Black Swan is a book that may change the way you think about the world, a book that Chris Anderson calls, "a delightful romp through history, economics, and the frailties of human nature." See Anderson's entire guest review below.
Guest Reviewer: Chris Anderson
 Chris Anderson is editor-in-chief of Wired magazine and the author of The Long Tail: Why the Future of Business Is Selling Less of More.
Four hundred years ago, Francis Bacon warned that our minds are wired to deceive us. "Beware the fallacies into which undisciplined thinkers most easily fall--they are the real distorting prisms of human nature." Chief among them: "Assuming more order than exists in chaotic nature." Now consider the typical stock market report: "Today investors bid shares down out of concern over Iranian oil production." Sigh. We're still doing it.
Our brains are wired for narrative, not statistical uncertainty. And so we tell ourselves simple stories to explain complex thing we don't--and, most importantly, can't--know. The truth is that we have no idea why stock markets go up or down on any given day, and whatever reason we give is sure to be grossly simplified, if not flat out wrong.
Nassim Nicholas Taleb first made this argument in Fooled by Randomness, an engaging look at the history and reasons for our predilection for self-deception when it comes to statistics. Now, in The Black Swan: the Impact of the Highly Improbable, he focuses on that most dismal of sciences, predicting the future. Forecasting is not just at the heart of Wall Street, but it's something each of us does every time we make an insurance payment or strap on a seat belt.
The problem, Nassim explains, is that we place too much weight on the odds that past events will repeat (diligently trying to follow the path of the "millionaire next door," when unrepeatable chance is a better explanation). Instead, the really important events are rare and unpredictable. He calls them Black Swans, which is a reference to a 17th century philosophical thought experiment. In Europe all anyone had ever seen were white swans; indeed, "all swans are white" had long been used as the standard example of a scientific truth. So what was the chance of seeing a black one? Impossible to calculate, or at least they were until 1697, when explorers found Cygnus atratus in Australia.
Nassim argues that most of the really big events in our world are rare and unpredictable, and thus trying to extract generalizable stories to explain them may be emotionally satisfying, but it's practically useless. September 11th is one such example, and stock market crashes are another. Or, as he puts it, "History does not crawl, it jumps." Our assumptions grow out of the bell-curve predictability of what he calls "Mediocristan," while our world is really shaped by the wild powerlaw swings of "Extremistan."
In full disclosure, I'm a long admirer of Taleb's work and a few of my comments on drafts found their way into the book. I, too, look at the world through the powerlaw lens, and I too find that it reveals how many of our assumptions are wrong. But Taleb takes this to a new level with a delightful romp through history, economics, and the frailties of human nature. --Chris Anderson
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Product Description |
A black swan is a highly improbable event with three principal characteristics: It is unpredictable; it carries a massive impact; and, after the fact, we concoct an explanation that makes it appear less random, and more predictable, than it was. The astonishing success of Google was a black swan; so was 9/11. For Nassim Nicholas Taleb, black swans underlie almost everything about our world, from the rise of religions to events in our own personal lives.
Why do we not acknowledge the phenomenon of black swans until after they occur? Part of the answer, according to Taleb, is that humans are hardwired to learn specifics when they should be focused on generalities. We concentrate on things we already know and time and time again fail to take into consideration what we don’t know. We are, therefore, unable to truly estimate opportunities, too vulnerable to the impulse to simplify, narrate, and categorize, and not open enough to rewarding those who can imagine the “impossible.”
For years, Taleb has studied how we fool ourselves into thinking we know more than we actually do. We restrict our thinking to the irrelevant and inconsequential, while large events continue to surprise us and shape our world. Now, in this revelatory book, Taleb explains everything we know about what we don’t know. He offers surprisingly simple tricks for dealing with black swans and benefiting from them.
Elegant, startling, and universal in its applications The Black Swan will change the way you look at the world. Taleb is a vastly entertaining writer, with wit, irreverence, and unusual stories to tell. He has a polymathic command of subjects ranging from cognitive science to business to probability theory. The Black Swan is a landmark book–itself a black swan. |
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The Abnormality of Normal Distributions |
Nassim Taleb's Black Swan makes for a fascinating read, despite (or perhaps because of) his heavily self-important style of writing. Taleb strikes at the core of the human tendency to prophesize, or more humbly, forecast all kinds of things. The reason why almost everyone gets it so wrong all the time, even while making predictions about seemingly mundane things (e.g., a project plan for building construction), is that they ignore the impact of "black swans", seemingly rare events. Taleb's contention is that while specific black swans are difficult to predict, the occurrence of some black swan or the other is very widespread in all walks of human life. In mathematical terms, Taleb contends that a lot of real life phenomena that are modeled using Normal or Gaussian distributions, are in fact governed by a Power Law distribution.
Taleb introduces the notions of Mediocristan and Extremistan, the former including all areas of measurement where the outlier event does not make much of a difference to the average (e.g., the average weight of any population sample will not be skewed by the fattest or the thinnest person), and the latter includes all areas where the outlier (or the black swan) typically dominates the sample (e.g., Bill Gates' wealth would dominate any sample of the wealth of1000s of people of which he was one). Taleb points out that Extremistan is more widespread and commonplace than we'd imagine, and that we commonly end up making the mistake of applying Mediocristan tendencies of averaging, linear extrapolation and Gaussian distributions to situations that belong to Extremistan.
Taleb argues that humans have a natural tendency to forecast, even though most previous forecasts have been proven wrong. In addition to ignoring the black swan, some of the reasons for incorrect forecasting include:
o Confusing cause and effect, or attaching unreasonable probabilities to events, due to "narrative fallacy": We have a tendency to believe statements of the form "U.S. Treasuries rise; Hussein Capture may not curb terrorism", which treats one event as a cause for the other. Similarly, people are likely to consider the scenario "A massive flood somewhere in America in which more than a thousand people die" as being less likely than the more narrative scenario "An earthquake in California, causing massive flooding, in which more than a thousand people die", even though the first scenario is more inclusive than the second.
o Ignoring "silent evidence" and drawing incorrect cause-effect relationships: Taleb quotes Cicero's story about Diagoras who, when shown the portraits of worshippers who prayed and then survived a shipwreck (the implicit suggestion being that the praying helped prevent their drowning), remarked "where are the portraits of those who prayed, and then drowned?". We often infer cause and effect relationships from incomplete data, because the only data we see has "the winner's bias". By ignoring silent evidence, we give an undue importance to the role of certain actions towards causing an outcome, instead of ascribing the outcome to luck or randomness.
o Confusing the uncertainty that averages out with the uncertainty in real life: We often confuse the unpredictable uncertainties we deal with (e.g., how long will the Iraq War last) to the more well-behaved uncertainties we find in the rolling of dice and casino games.
Even if we opened our eyes to these mistakes, Taleb argues that we can not predict most real life phenomena. Modeling real life events using the Gaussian distribution is incorrect, because the assumptions behind the Gaussian (that all changes happen in a series of small steps, and that the odds are balanced at each step) do not hold in real life.
So what's one to do in the face of these difficulties in forecasting? Taleb offers his prescriptions: First, do not try to predict a specific black swan, and instead just expect some black swan to happen; and second, take actions that expose yourself aggressively to black swans (i.e., expose yourself to wild upsides and downsides) but at the same time protect your downside using some form of insurance. For example if you are investor, invest 15% of your portfolio in wildly unpredictable assets, and invest the remaining in safe insured assets.
Overall, I found Taleb's book a great read for anyone who uses data in decision making. It exposes a lot of mistakes I have seen myself and people around me make. I would strongly recommend this book to anyone, and I feel that reading The Black Swan will help any reader improve their understanding (or at least expose our lack of understanding) of the workings of the world around us. |
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Pompous and annoying |
As others have observed, there are a couple of good ideas in this book. The style, however, makes it practically unreadable. I actually listened to the audiobook; one of the editorial reviews comments that the reader salvaged the work somewhat by softening the sarcastic and annoying tone; I did not find that to be the case. It's hard to blame the narrator, as he seems to have captured more-or-less the author's intent.
The "couple of good ideas" are fairly straightforward. One, don't assume that you know the form of the probability distribution of any given social or economic phenomenon. That's good advice. It's often easy to find a function and a set of parameters that appear to fit a given historical data set; but just because the function appears to fit historically doesn't mean it's going to be predictive. Two, if the form of the distribution is unknown and unknowable, then computed measures of "risk" are not reliable, as risk is in fact incalculable. So, a good investing strategy is to avoid assets whose valuation depends on risk estimates, and seek out certain other assets. Following that strategy would have kept you out of a lot of the asset classes that have melted down recently.
The most frustrating problem with the way the book is written is its lack of self-consistency. For example, there is a long discussion of "silent evidence": just because you don't observe something doesn't mean it's not there. Then, over and over again, Taleb tries to assert that no one in business, or the social sciences, or this or that domain understands a certain issue correctly. Even if we assume for a moment that Taleb's understanding of the point in question is correct, and that he is therefore qualified to pass judgement on who is a Right-Thinking Individual, the fact that he has not encountered any Right-Thinking Individuals does not mean they don't exist. He may not have met them; or he may have met them and not been listening when they spoke; or he may have met them and presented his ideas in such a contemptuous way they chose not to engage in conversation, concluding there would be no value to themselves in it.
Then there is the rant against the bell curve that occupies the last chapters of the book. Kind of silly to get angry at a mathematical function. It's like criticizing a hammer for not being a screwdriver. In a few places the author does draw the distinction between appropriate uses of the bell curve and inappropriate uses, which is of course the (perfectly reasonable) point he is trying to make. Most of this section, however, is written in a much more sloppy and imprecise way, so that any sentence or paragraph by itself comes across as criticizing the hammer. To make sense of it one has to keep saying to oneself "well what he really means is that there are certain people who misuse this tool, and they shouldn't."
Similarly, the assault on academic economics and the Nobel Prize. Not many people would argue that idealized models are predictive of reality. That's not the same as saying they are without value; it just means one has to know what to use them for. The author does find value in behavioral economics, but somehow when attacking academia seems to forget that a) behavioral economics is all the rage today in academic circles, and b) the Nobel committee, who Taleb considers so clueless, awarded Kahneman the economics prize for inventing it. [Another self-consistency issue here: after a very lengthy discursion on the value of empiricism and the fallacy of oversimplified models, Taleb confidently repeats numerous experimental-psychology and behavioral-economics results as "the way we behave," where by "we" he means all of humanity, excluding perhaps himself the Enlightened One. In fact, most of these results are based on very small samples, so while they are indeed interesting, the authors generally go to great lengths to explain that what they have observed COULD have a certain meaning or cause, but that the data are not conclusive, as other causes could have led to the same observations.]
Great books are like great friends. Even when they challenge your ideas, you want to enage with them because it's such a pleasure. This is not such a book. The ideas, while interesting, are not as controversial as the author claims, and they aren't worth the pain of struggling through the writing. |
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Great idea - mediocre presentation |
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I listened to the audiobook. I think the idea behind this book is very, very interesting - life is shaped more by random (non-predictable) events than by anything one of us can foresee. That being said, the author has filled the book with several anecdotes that are somewhat meaningless (eg, the fictitious Russian author) and/or irrelevant (autobiographical details of his life) - hence the 4 stars, rather than the 5 stars the idea deserves. It appears that at times, he is trying to be too clever by half, and destroys the rhythm of ideas by being too verbose. Some of his sentences are very convoluted, and I found myself having to rewind and listen to some sentences more than once to figure out what he means by what he says. I found the parallels with Asimov's futuristic science fiction Foundation series- where Harry Seldon constructs his of mathematically predicting the future, but is thrown off by the unpredictable appearance of the Mule (=a black swan). It is odd, especially in the context of this book, that over so many millennia that the Foundation existed, why only one such even that was so enormously disruptive occurred. According to Taleb, they should be occurring much more commonly. Had this book been written better, I would have given it 5 stars. |
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The Black Swan is a Red Herring |
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Nicholas Taleb has seemingly spent his entire life chasing what he refers to as the black swan. A series of highly improbable events that have continuously shaped the course of human history. He presents his description of this phenomenon in what might be termed an autobiographical manifesto of sorts, the exhaustive and seemingly endlessly referenced book, "The Black Swan -- The Impact of the Highly Improbable". It's not that Taleb isn't onto something, or hasn't written a thought provoking book, he has. But Taleb has not given us a black swan. He has given us a Red Herring. He has taken a small piece of stinky fish and dragged it in the dirt perpendicular to the path we are on. There is a small benefit, if we leave our path momentarily to gain a new perspective, new insights will emerge, but that is all our feeble brains can comprehend, and nothing more. But to believe there are no thinker's among us who do not understand the need to search for the extraordinary and to try to link them to potential causes, that although we might not understand completely, are contributory and can indeed be rectified, is not to be an observer of the human race at all. Ultimately he is wrong about the Black Swan but he is right about the requirement for us to think outside the box. But this has been said before. Taleb just reminds us. |
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First 2 chapters are worth the price |
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The research based information on the psychology of marketing, buying and selling that are described in the first two chapters are little known, facinating and extremely useful for those at many levels. Detailed discussions of "decoys" in marketing products, the relative comparisons involved in almost all buying decisions and the incredible effects of "free" merchandise such as Americancivilwar's free shipping are given in an interesting and engaging way. After that the impact and interest of the information declines with each chapter and by chapter 7 it is hard to tell what the focus of the book (audio) is. A guess would be that after chapter three it just goes on to whatever the author found interesting and researched. |
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