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The Black Swan: The Impact of the Highly Improbable (Incerto) Hardcover – Illustrated, April 17, 2007
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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 its 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
Copyright © American Library Association. All rights reserved
- Publisher : Random House; Annotated edition (April 17, 2007)
- Language : English
- Hardcover : 366 pages
- ISBN-10 : 1400063515
- ISBN-13 : 978-1400063512
- Item Weight : 1.49 pounds
- Dimensions : 6.45 x 1.55 x 9.56 inches
- Best Sellers Rank: #62,168 in Books (See Top 100 in Books)
- Customer Reviews:
"A timely novel highlighting the worth and delicate nature of Nature itself." -Delia Owens Learn more
Top reviews from the United States
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The author comes off as very self-righteous and rather arrogant. That didn't help starting the book off feeling that way over the first few chapters.
The problem I have this book, is that while Nassim identifies the theories well, he did not produce the evidence, examples, or anecdotes all too interestingly. It was...well...rather boring.
My second issue with the book is that he doesn't do a good enough job providing applicable takeaways; opportunities to use the research and data in one's life or work. He writes about the theories but doesn't tell the readers how to best put it into practice in our lives.
Good topic, mediocre execution. I'm disappointed mostly because I had been looking forward to reading this book for a while.
All swans are white.
This bird is a swan.
ergo, this bird is white.
Nobody ever had a problem with this, well, almost no one; some did. Then one day, a discovery was made in the western climes of Australia: there were birds there that looked like swans: large, aquatic, long slender neck, large distinctive beak; acted like swans: swam gracefully in the water, laid large eggs, waddled when walking on land. There was only one minor problem: they were black, not white. This created some problems; first, amongst the experts, who claimed a swan couldn't be black, but had to be white. Next, it completely destroyed the logic exercise mentioned above. It seems the problem was with the experts: they had decreed that swans were white, and now here was a bird in Australia that for all the world met the definition of a swan, except for color. It was a challenge to the experts.
That, in a nutshell, is what Professor Taleb's book is all about: pointing out when, where and how some experts, in this case experts in the financial world, get caught by events that were not expected to occur. The sub title of the book, The Impact of the Highly Improbable, suggests that maybe probability might have something to do with why financial experts get caught with their predictions down: they don't understand probability. The real problem is that no one knows the future, so predictions about what may happen in the future are in fact nothing more than at best educated guesses, as weighted by the probability of the event occurring. There's the rub: no one knows the appropriate probability distribution to use when dealing with the future, and often it's the occurrence of "highly improbable" events that rip us up. Hurricane Katrina is an example: a once in a hundred or five hundred year event; and as such caught the responsible officials apparently flat footed. But there are other equally improbable events that occur seemingly every day, like accidentally hitting a thumb with a hammer, and don't create the problems Katrina created. Why?
One answer might be the value associated with the occurrence of the event. For example: a traveler from somewhere arrives in the US, and brings a mild stain of flu, which some of the population subsequently contract. Not much of a problem there. But suppose a traveler from somewhere arrives in the US with a nuclear device. That's a completely different kettle of fish. How, or who, can distinguish the difference in thes two events, untll after the fact?
If' you've ever had a course in statistics or hope to at some time in the future, reading Professor Taleb's book will give you some grist to chew on, to mix a metaphor. Often overlooked is that statistics deals with the past, and probability deals with the future; they're only related by assumptions that we make about how the past s a predictor of the future. And since highly improbable events are, by definition, almost never represented in the statistics, except maybe as outliers, it follows that statistics really isn't a very good predictor of the future.
The book is a good read; hopefully, after reading it, you'll be extremely skeptical of anybody who makes any prediction about the future; including this one.
Oh, by the way: Professor Taleb apparently made a fortune in futures trading, following much of what he talks about in his book: skepticism.
I would have given this book one or two stars for its total lack of focus and extremely wordy writing style. But the author is also a undeniable genius and the book has high level intellectual analysis. I just wish the author had taken a pill to calm down his apparent attention deficit disorder (ADD).
The author slams the bell curve (standard statistical analysis) and the standard deviation. He calls them the Great Intellectual Fraud (GIF) precisely because the bell curve takes out the black swans of data. The black swan is an event which is far from probable, but is also far from impossible. Black swans are the extremities of data. Surprisingly, black swans show up far more in our daily lives than the regular statistical analysis would indicate.
So what do we learn from this? NO ONE can predict the future on anything with regularity. Expect the unexpected. Luck plays greater role in our lives than we think, especially when it comes to extremities (extreme wealth, extreme success, extreme failures etc). The information age has brought us even more extremities. If you are not ultratalented and knowledgeable of your craft, then stick to a non-scalable (paid by the hour) pay rate.
Top reviews from other countries
- his explanations on the different estates of reality and how it’s difficult to assess luck (a more refined explanation of the main topic of “Fooled by Randomness”)
- how nonlinear effects are prevalent in modern society.
- How Gaussian statistics may be an elegant, but wrong, description of reality and how using it can be downright dangerous
- Multitude of examples on how our behavioral biases reinforce those phenomena and lull us into a false sense of security and control.
- Discussions on the “ludic fallacy”, the limited capability we have in forecasting and mistaking absence of evidence for evidence of absence.
If you’re looking for the “best” blend between practical advice and philosophical inquiry in Taleb’s works, I would recommend this book. It’s clear that some of his opinions from his first book have evolved, either from experience or from reading more broadly. While I still vouch for Antifragile message as the more refined and broad view of Taleb’s interpretation of reality, this book is more focused on the implementation on financial markets. Nonetheless, I would argue that the reader would be better by reading every book in the Incerto series, since it provides numerous interpretations on the effects of nonlinearity.
Also, read the footnotes and the notes at the end of the book: they contributed greatly to my understanding of certain topics. Additionally, they provide valuable sources for the many interesting topics the book deals with. My reading list certainly benefited from that.
The hardcover edition from Random House is great, with thick paper, good spacing and large font, making the reading experience much easier.
I suppose Mr. Taleb deserves kudos for tackling a topic, probability and statistics, which is most easily described in mathematical terms without once resorting to mathematical formulae and for minimizing the use of figures and graphs but any benefit is quickly nullified by Mr. Taleb's opaque writing style and his tendency to wander off into unrelated side issues. That wandering feels suspiciously like padding.
Happily, arrogance and abstruse writing does not mean Mr. Taleb is incorrect or does not have something important to say. He does. His main point, that the Gaussian (or Bell) Curve is overused which leads to damaging errors, is well taken and we can all profit from the knowledge. Plus there are a few other nuggets such as his discussion of common shortcomings in critical thinking. I might have nudged my rating up to four stars if Mr. Taleb had managed to include a few concrete examples of applying his black swan model to real, everyday situations but, alas, with one or two exceptions, they are conspicuously absent; surprising, perhaps, from an author claiming to be a "bottom-up" sceptical empiricist.
I wish I could recommend an alternate author or book that covered Mr. Taleb's topic more agreeably but I can't. Proceed with caution.