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The Black Swan: Second Edition: The Impact of the Highly Improbable: With a new section: "On Robustness and Fragility" (Incerto) Paperback – May 11, 2010
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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 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
--This text refers to the Audio CD edition.
In business and government, major money is spent on prediction. Uselessly, according to Taleb, who administers a severe thrashing to MBA- and Nobel Prize-credentialed experts who make their living from economic forecasting. A financial trader and current rebel with a cause, Taleb is mathematically oriented and alludes to statistical concepts that underlie models of prediction, while his expressive energy is expended on roller-coaster passages, bordering on gleeful diatribes, on why experts are wrong. They neglect Taleb's metaphor of "the black swan," whose discovery invalidated the theory that all swans are white. Taleb rides this manifestation of the unpredicted event into a range of phenomena, such as why a book becomes a best-seller or how an entrepreneur becomes a billionaire, taking pit stops with philosophers who have addressed the meaning of the unexpected and confounding. Taleb projects a strong presence here that will tempt outside-the-box thinkers into giving him a look. Gilbert Taylor
Copyright © American Library Association. All rights reserved --This text refers to the Audio CD edition.
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Top customer reviews
I am still absorbing this but I think it has changed how I look at things and manage for risk and opportunity.
The author's writing is sometimes a bit bombastic and even perhaps condescending but a smart reader won't let that get in her way.
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.