What I Have Learned From "The Black Swan - The Impact of The Highly Improbable" by Nassim Nicholas Taleb
Book Review by Sikander Hayat
As far as I have been able to decipher, this book is about the emergence of an event which
is totally unforeseen, unpredictable and which cannot be modelled for by our usual
forecasting models. Black Swan by Nassim Nicholas Taleb is a great book to read despite
its length and tone which shows its anger against the current establishment in academia,
industry and just about anyone in high places. Nassim has been a quant in his previous life,
has practised financial forecasting methods in trying to choose the eventual winners and has
tried to use his practitioner's knowledge to inject life into the idea of his Black Swan thesis.
Although he has used forecasting models in his life as a trader, he is fully aware of the short
comings of these models and in fact, he makes a strong case against modelling risk with the
current tools at our disposal. These models are fine as far as life goes on without any
extreme events but the moment an extreme event happens, these models fall apart and give
you no workable answers.
In his view, world tries to make sense of events after they have taken place, try to find
causes for these happenings post event and with the help of hindsight. We as humans have
to find a reason for everything, look for causes in all events and we manage to do that with
what Nassim calls our psychological short comings of narrative fallacy and confirmation
limited ability to look at sequences of facts without weaving an explanation into them, or,
equivalently, forcing a logical link, an arrow of relationship upon them. Explanations bind
facts together. They make them all the more easily remembered; they help them make more
sense” and confirmation bias is “the tendency to interpret new evidence as confirmation of
one's existing beliefs or theories”. Nassim uses ideas from Daniel Kahneman to hit home
his point about narrative fallacy and confirmation bias.
He makes a point that throughout the human history, most major events were Black Swan
events as no one saw them coming but these events changed the world nonetheless. He
uses the stories from ancient Greek, Roman and to some extent Arab philosophers to
hammer home his idea in uncertainty and randomness. He makes a point that one single
event can change the lives of the people it effects and for that he used examples from
history which include but not limited to major religions like Christianity and Islam, 20th
century wars in Europe and abundant financials crashes which no one saw coming, no one
predicted and no one prepared for. He has shown a disdain for anything and anyone who
says that things can be predicted and modelled. He has reserved his greatest
economics as for multitude of reasons.
Apart from the central idea of the book, there are many nuggets of wisdom that Nassim took
from ancients and has tried to pass these on to his readers. He believes in a scholar who is
free of money worries and chooses scholarly pursuits to advance knowledge
and not forced to be a scholar because of his needs. He uses a phrase "fuck you money"
which releases a man to do what he wants to do and not what he needs to do.
He has shown his preference for professions which allow a man to earn money while not
being present, like a piece of music which goes global and sells millions of copies over
many years, like a book which keeps on selling even after the death of its author and other
pursuits which are scalable. He discusses the idea of winner takes all nature of the current
global economy and wants his readers to be prepared for it.
He goes to great pains to explain that his idea of Black Swan it not only of a negative but we
have the potential to collect positive Black Swans as well. He gives examples of medical
discoveries like Penicillin which was accidently discovered by Alexander Fleming while he
was looking for something else and which has arguably saved the greates number of lives
in history of the world.
His argument is that for positive Black Swans to happen, you have to contionously create
conditions (knocking at the door), to be in the near vicinity to collect that Black Swan. He
says that one of the biggest advantages of living in a big city is that of chance encounters
with people, events which can lead to opportunities which are unforeseen.
The beauty of this book is that apart from it central idea of Black Swan event, it goes into a
lot of detail into topics which are good from a learning perspective. It discusses the life of
philosophers, scientists , mathematicians, statisticians, Nobel winners and numerous other
scholars to either negate what they said or use them to prove the main thesis of Black
Swan.
Main theme of the book is that of “randomness”. We don't know what will happen in the
future as far as “big events” go so we might as well stop pretending that we know.
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