The most influential book of the past seventy-five years: a groundbreaking exploration of everything we know about what we don’t know, now with a new section called “On Robustness and Fragility.”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 … 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. In this revelatory book, Taleb will change the way you look at the world, and this second edition features a new philosophical and empirical essay, “On Robustness and Fragility,” which offers tools to navigate and exploit a Black Swan 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. Elegant, startling, and universal in its applications, The Black Swan is a landmark book—itself a black swan.
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Not an easy read, but very interesting and innovative ideas. Something to ponder and consider.
Most people do not understand the probability of bad things happening. This explains it.
The Black Swan is not an easy read but an extremely rewarding book for the careful reader. The primary point made by the book is to avoid trying to predict extremely rare events, which is what Black Swans are defined as but to have a strategy that is robust enough that allows you to survive the bade events while you take advantage of the good ones. Because his view is dominated by the trading culture from which he comes, Taleb looks at the financial institutions and notes that they have exposures that are not predicted by their mathematical models.
Before I say anything about the models, I want to illustrate a great movie that illustrates what Taleb is talking about. The movie is Margin Call. The action takes place in roughly a 24-hour period during which a laid-off risk manager gives a subordinate a thumb drive with an incomplete file that he had been working on. The subordinate completes the analysis, sees the terrible conclusion and calls in his new boss. The action begins as the boss and his superior call in the board and a decision is made to sell all of the toxic assets before the Street figures out just how bad things are. Taleb actually lived through such a scenario except he profited from the collapse that the analysis showed was inevitable.
In the Black Swan, Taleb argues that because people tend to assume that the future will resemble the past they make predictions that future events will resemble the past and make the appropriate financial bets with that in mind. But unforeseen events like major bank failures, sovereign defaults, wars, or major terrorist events can have a huge impact not just on the markets but on history.
One of Taleb’s major points is that people tend to be arrogant and assume that their knowledge is far greater than it is. The biggest culprits are those that are deemed to be ‘experts.’ But the problem for human beings is that they do not understand that knowledge of complex systems like the economy, weather, biological systems, or financial markets is always limited. Even though they believe that they can use complicated models to predict future outcomes, the experts fail.
They simply do not know what all of the important variables are, how they influence each other, or how they could be studied by holding all other things constant. The bottom line is that financial analysts and economists are not like physicists and that their models have terrible flaws that will eventually lead to disaster for all those that bet on their outcomes, particularly if they use language.
Taleb is a good writer but because he is very intelligent and ties in very different areas he may be hard to follow for some people. I suggest that before people read The Black Swan they take a look at his first book on the topic, Fooled by Randomness. One positive effect of reading Taleb is his references to other writers that we should look at. He reminded me of the great value there is in Herodotus’s story about Cyrus and Croesus and I have been using it to teach some valuable lessons for my kids. If you can handle the language and have what it takes to look up references that you may not be familiar with, the Black Swan is a book that will yield many benefits.
But I do have one negative comment. While Taleb’s ideas are great, I think that he may be vulnerable to a black swan event himself because his strategy depends on the USD remaining a viable money substitute and avoiding the fate of all fiat currencies. If he is wrong, he will suffer as much as the people that he bet against.
Great book if you enjoy reading about an author who thinks he’s all that and a bag of chips. He repeatedly tells the reader that he was the ONLY one who saw this coming or that coming. When my book club discussed it we took a vote of how many people hated it. Most members raised their hand.