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The Black Swan: The Impact of the Highly Improbable

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The Black Swan: The Impact of the Highly Improbable is a 2007 book by Nassim Nicholas Taleb, who is a former options trader. The book focuses on the extreme impact of rare and unpredictable outlier events—and the human tendency to find simplistic explanations for these events, retrospectively. Taleb calls this the Black Swan theory.

The Black Swan
Hardcover first edition
AuthorNassim Nicholas Taleb
LanguageEnglish
SeriesIncerto
SubjectEpistemology, philosophy of science, randomness
GenreNon-fiction
PublisherRandom House (U.S.) Allen Lane (U.K.)
Publication date
April 17, 2007
Publication placeUnited States
Media typePrint, e-book
Pages400 pp (hardcover)
ISBN978-1400063512 (U.S.), ISBN 978-0713999952 (U.K.)
OCLC71833470
003/.54 22
LC ClassQ375 .T35 2007
Preceded byFooled by Randomness 
Followed byThe Bed of Procrustes 

The book covers subjects relating to knowledge, aesthetics, as well as ways of life, and uses elements of fiction and anecdotes from the author's life to elaborate his theories. It spent 36 weeks on the New York Times best-seller list.[1]

The book is part of Taleb's five-volume series, titled the Incerto, including Fooled by Randomness (2001), The Black Swan (2007–2010), The Bed of Procrustes (2010–2016), Antifragile (2012), and Skin in the Game (2018).[2]

Coping with Black Swan events

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A central idea in Taleb's book is not to attempt to predict Black Swan events, but to build robustness to negative events and an ability to exploit positive events. "Robustness" reflects an attitude where nothing is permitted to fail under conditions of change.[3] Taleb contends that banks and trading firms are vulnerable to hazardous Black Swan events and are exposed to losses beyond those predicted by their defective financial models.

The book asserts that a "Black Swan" event depends on the observer: for example, what may be a Black Swan surprise for a turkey is not a Black Swan surprise for its butcher. Hence the objective should be to "avoid being the turkey", by identifying areas of vulnerability in order to "turn the Black Swans white".

Summary

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Taleb has referred to the book as an essay or a narrative with one single idea: "our blindness with respect to randomness, particularly large deviations."[4] The book moves from literary subjects in the beginning to scientific and mathematical subjects in the later portions. Part One and the beginning of Part Two delve into psychology. Taleb addresses science and business in the latter half of Part Two and Part Three.[5] Part Four contains advice on how to approach the world in the face of uncertainty and still enjoy life.

Taleb acknowledges a contradiction in the book. He uses an exact metaphor, the Black Swan idea to argue against the "unknown, the abstract, and imprecise uncertain—white ravens, pink elephants, or evaporating denizens of a remote planet orbiting Tau Ceti."

There is a contradiction; this book is a story, and I prefer to use stories and vignettes to illustrate our gullibility about stories and our preference for the dangerous compression of narratives.... You need a story to displace a story. Metaphors and stories are far more potent (alas) than ideas; they are also easier to remember and more fun to read.[6]

Part one: Umberto Eco's antilibrary, or how we seek validation

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In the first chapter, the Black Swan theory is first discussed in relation to Taleb's coming of age in the Levant. The author then elucidates his approach to historical analysis. He describes history as opaque, essentially a black box of cause and effect. One sees events go in and events go out, but one has no way of determining which produced what effect. Taleb argues this is due to The Triplet of Opacity (an illusion of understanding in which we think we understand a complicated world).[7][8]

The second chapter discusses a neuroscientist named Yevgenia Nikolayevna Krasnova, who rejects the distinction between fiction and nonfiction, and her book A Story of Recursion. She published her book on the web and was discovered by a small publishing company; they published her unedited work and the book became an international bestseller. The small publishing firm became a big corporation, and Krasnova became famous. But her next book fails. So, she experienced two black swans.[9] The book goes on to reveal that the so-called author is a work of fiction, based in part on Taleb.[10]

The third chapter introduces the concepts of Extremistan and Mediocristan.[11] He uses them as guides to define the predictability of the environment one is studying. Mediocristan environments can safely use Gaussian distribution. In Extremistan environments, a Gaussian distribution should be used at one's own peril.[12] In this part he quotes Benoit Mandelbrot and his critique of the Gaussian distribution.[13] [unreliable source?]

Chapter four brings together the topics discussed earlier into a narrative about a turkey before Thanksgiving who is fed and treated well for many consecutive days, only to be slaughtered and served as a meal. Taleb uses it to illustrate the philosophical problem of induction and how past performance is no indicator of future performance.[14] He then takes the reader into the history of skepticism.

In chapter nine, Taleb outlines the multiple topics he previously has described and connects them as a single basic idea. In chapter thirteen, the book discusses what can be done regarding "epistemic arrogance", which occurs whenever people begin to think they know more than they actually do.[15] He recommends avoiding unnecessary dependence on large-scale harmful predictions, while being less cautious with smaller matters, such as going to a picnic. He makes a distinction between the American cultural perception of failure versus European and Asian stigma and embarrassment regarding failure: the latter is more tolerable for people taking small risks. He also describes the "barbell strategy" for investment that he used as a trader, which consists in avoiding medium risk investments and putting 85–90% of money in the safest instruments available and the remaining 10–15% on extremely speculative bets.[16][17]

Argument

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The term black swan was a Latin expression: its oldest reference is in the poet Juvenal's expression that "a good person is as rare as a black swan" ("rara avis in terris nigroque simillima cygno", 6.165).[18] It was a common expression in 16th century London, as a statement that describes impossibility, deriving from the old world presumption that 'all swans must be white', because all historical records of swans reported that they had white feathers.[19] Thus, the black swan is an oft cited reference in philosophical discussions of the improbable. Aristotle's "Prior Analytics" is the most likely original reference that makes use of example syllogisms involving the predicates "white", "black", and "swan." More specifically, Aristotle uses the white swan as an example of necessary relations and the black swan as improbable. This example may be used to demonstrate either deductive or inductive reasoning; however, neither form of reasoning is infallible, since in inductive reasoning, the premises of an argument may support a conclusion, but do not ensure it, and similarly, in deductive reasoning, an argument is dependent on the truth of its premises. That is, a false premise may lead to a false result and inconclusive premises also will yield an inconclusive conclusion. The limits of the argument behind "all swans are white" is exposed—it merely is based on the limits of experience (e.g., that every swan one has seen, heard, or read about is white). The point of this metaphor is that all known swans were white until the discovery of black swans in Australia.[20] Hume's attack against induction and causation is based primarily on the limits of everyday experience and so too, the limitations of scientific knowledge.

Reception

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The book has been described by The Sunday Times as one of the twelve most influential books since World War II.[21] As of December 2020, it has been cited approximately 10,633 times, 9,000 of which are for the English-language edition.[22] The book spent 36 weeks on the New York Times Best Seller List;[23] 17 as hardcover and 19 weeks as paperback.[24] It was published in 32 languages.[25]

Mathematics professor David Aldous argued that "Taleb is sensible (going on prescient) in his discussion of financial markets and in some of his general philosophical thought, but tends toward irrelevance or ridiculous exaggeration otherwise."[26] Gregg Easterbrook wrote a critical review of The Black Swan in the New York Times[27] to which Taleb replied with a list of logical errors, blaming Easterbrook for not having read the book.[28] Giles Foden, writing for The Guardian in 2007, described the book as insightful, but facetiously written, saying that Taleb's "dumbed-down" style was a central problem, especially in comparison to his earlier book, Fooled by Randomness.[29] The Nobel Prize–winning psychologist Daniel Kahneman wrote "The Black Swan changed my view of how the world works" and explains the influence in his own 2011 book Thinking, Fast and Slow.

See also

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Notes

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  1. ^ Baker-Said, Stephanie (March 27, 2008). "Taleb Outsells Greenspan as Black Swan Gives Worst Turbulence". Bloomberg News. Retrieved December 20, 2020.
  2. ^ Clancy, Josh (April 7, 2018). "The chaos man". The Australian. Retrieved December 20, 2020.
  3. ^ Krishnadas, Devadas (2015). FUSE: Foresight-driven Understanding, Strategy and Execution: Move The Future. Marshall Cavendish. p. 163. ISBN 9789814721455.
  4. ^ Taleb 2007 p.xix.
  5. ^ Monaco, Alex (September 2, 2020). "9 Books About Your Life That Will Make Your Life better". alexmonaco.net. Retrieved December 20, 2020.
  6. ^ Taleb 2007 PROLOGUE p.xxvii, Taleb call this human tendency the narrative fallacy: we seem to enjoy stories, and we seem to want to remember stories for their own sake.
  7. ^ Taleb 2007 PROLOGUE p8.
  8. ^ Yetiv, Steve A. (2013). National Security Through a Cockeyed Lens: How Cognitive Bias Impacts U.S. Foreign Policy. Johns Hopkins University Press. p. 39. ISBN 9781421411255.
  9. ^ Hampton, John (2009). Fundamentals of Enterprise Risk Management: How Top Companies Assess Risk, Manage Exposure, and Seize Opportunity. AMACOM. p. 49. ISBN 9780814414934.
  10. ^ Li, Arthur (December 21, 2016). "Yevgenia Krasnova – the Gem of a Black Swan". LinkedIn Pulse. Retrieved December 20, 2020.
  11. ^ Sandis, Constantine (August 25, 2014). "Interview: Nassim Nicholas Taleb". Philosophy Now (69). Retrieved December 20, 2020.
  12. ^ Salmon, Felix (August 23, 2009). "The Flaw of Averages". Reuters blogs. Archived from the original on August 27, 2009. Retrieved December 20, 2020.
  13. ^ Davies, Will (June 15, 2007). "All in a Flap: Beware of Unknown Unknowns". Oxonian Review. 6 (3). Archived from the original on May 28, 2011. Retrieved December 20, 2020.{{cite journal}}: CS1 maint: unfit URL (link)
  14. ^ Chevallier, Arnaud (2016). Strategic Thinking in Complex Problem Solving. Oxford University Press. p. 88. ISBN 9780190463908.
  15. ^ Gould, Patrick (2009). Prudent Decision Making in an Imprudent World: Better Decisions at Home and Work: Better Decisions at Home and Work. ABC-Clio. p. 34. ISBN 9780313372322.
  16. ^ Farrell, Maureen (June 8, 2011). "Protect Your Tail". Forbes. Retrieved December 20, 2020.
  17. ^ Collins, Bryan (August 23, 2018). "Why You Should Prepare For Disaster (And How To Do It)". Forbes. Retrieved December 20, 2020.
  18. ^ Puhvel, J. (1984). "The Origin of Etruscan tusna ("Swan")". American Journal of Philology. 105 (2): 209–212. doi:10.2307/294875. JSTOR 294875.
  19. ^ Taleb, Nassim Nicholas. "Opacity: What We Do Not See". Fooledbyrandomness.com. Retrieved October 1, 2010.
  20. ^ Groarke, Louis (2009). An Aristotelian Account of Induction: Creating Something from Nothing. McGill–Queen's University Press. p. 151. ISBN 9780773535954. ISSN 0711-0995.
  21. ^ Appleyard, Bryan (July 19, 2009). "Books that helped to change the world". The Sunday Times.
  22. ^ "Nassim Nicholas Taleb". Google Scholar. Retrieved December 20, 2020.
  23. ^ Rose, Charlie (February 24, 2011). "Charlie Rose Talks to Nassim Taleb". Bloomberg News. Retrieved December 20, 2020.
  24. ^ Schuessler, Jennifer (January 16, 2011). "Paperback Nonfiction". The New York Times. Retrieved December 20, 2020.
  25. ^ Taleb, Nassim Nicholas (May 11, 2010). The Black Swan: Second Edition: The Impact of the Highly Improbable: With a new section: "On Robustness and Fragility". Random House Trade Paperbacks. ISBN 978-0812973815.
  26. ^ David Aldous (2011). "A critical review of Taleb, Nassim Nicholas. The Black Swan: The Impact of the Highly Improbable". Notices of the American Mathematical Society (March): 427–413.
  27. ^ Easterbrook, Gregg (April 22, 2007). "Possibly Maybe". The New York Times. Retrieved December 20, 2020.
  28. ^ Nassim Nicholas Taleb. "Abbreviated List of Factual and Logical Mistakes in Gregg Easterbrook's Review of The Black Swan in The New York Times" (PDF). Fooledbyrandomness.com. Retrieved November 5, 2017.
  29. ^ Foden, Giles (May 12, 2007). "Stuck in Mediocristan". The Guardian. Retrieved January 7, 2015.
  30. ^ The Black Swan was dedicated to Mandelbrot.
  31. ^ Taleb, Nassim Nicholas (November 1, 2010). "Benoît Mandelbrot". Time. Archived from the original on October 26, 2010. Retrieved November 5, 2017.

References

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