on July 30, 2007
Starting with the good (chapters 15 - 17), within chapter 15 Taleb explains where the Bell curve works and where it does not. The Bell curve captures well variables that don't deviate much from the mean. Otherwise, it does not work. Taleb suggests we often fool ourselves in believing that correlation, regression coefficients, or standard deviation convey much information. This is because those coefficients are unstable (and can flip sign when possible) depending on the time selected. This is because the underlying variables are often not stationary enough for these coefficients to be stable.
Chapter 16 is excellent as an introduction to Mandelbrot's fractal geometry as an alternative to Gaussian based investment theory. He supports well that these mathematical tools do capture randomness (of non-stationary variables) far better than the Normal distribution. However, he admits that Mandelbrotian models are not predictive. When looking at the same data set, he and numerous colleagues each came up with different underlying parameters to build fractal-like models. And a small difference in such parameters makes a huge difference in outcome. That's why you will not hear much of fractal geometry within the quantitative financial community. Nevertheless, this is a fascinating subject that deserves further exploration. For this purpose, I recommend Mandelbrot's The Misbehavior of Markets
Within Chapter 17, Taleb further elaborates on the flaws of the Normal distribution. He underlines that half of the return of the stock market over the past 50 years was associated with just 10 days with the greatest daily change. This is an example where stock returns have outliers of such magnitude that using the Normal distribution is not appropriate. Taleb describes the run-ins he experienced with the living legends of modern finance including Myron Scholes and Robert Merton due to his rejection of the Normal distribution assumption that underlies all their models.
The remainder of the book is not nearly as good. Hundreds of pages can be summed up in just stating that we can't predict rare events. Taleb goes way overboard in attributing everything to luck. He thinks MicroSoft beat out Apple just due to luck. Taleb does not consider that MicroSoft open system allowed it to mushroom while Apple locked itself into a proprietary corner. Also, according to Taleb both the rise and fall of Rome were due entirely to luck. But, Rome was best at developing military strategy and transportation networks. However, it eventually suffered from imperial overstretch. Explanations are not always narrative fallacies as Taleb believes. They often beat out ignorance.
When it comes to advice, Taleb's recommendation is interesting. It consists in an asset allocation of 85% risk free investments (T-bill) and the 15% remainder into buying way out of the money Calls and Puts. By doing so, he positions his portfolio to capture the occasional mispriced Black Swans.
This book is somewhat uneven in quality and is not nearly as good as his first book: Fooled by Randomness Revision (Not Available in US): The Hidden Role of Chance in the Markets and Life that has become a classic on Wall Street. Otherwise, it still is an interesting reading.
If you find the subject of this book intriguing, let me suggest a few other books that are more rewarding. Scott Plous'sThe Psychology of Judgment and Decision Making explores the flaws in human judgments far more thoroughly and clearly than Taleb in `The Black Swan.' Perry Mehrling's Fischer Black and the Revolutionary Idea of Finance is also an excellent book. Ideally, that may be who Taleb would have liked to become. Fischer Black was brilliant and as skeptical as Taleb regarding much of the body of economics and finance. Yet, he left a great legacy of elegant models that people still use extensively including the famous Black-Scholes option model. Yes those models were often based on Taleb's dreaded Normal distribution. But, with minor modifications those models have remained valuable. Another recommendation is William Poundstone's Fortune's Formula: The Untold Story of the Scientific Betting System That Beat the Casinos and Wall Street that describes the career of a bright MIT mathematician, Ed Thorp. The latter showed how to successfully deal with uncertainty in gambling and investing. Even Taleb recognized Thorp's unique expertise within `Black Swan.'
on April 18, 2007
If, as Socrates would have it, the only true knowledge is knowledge of one's own ignorance, then Nassim Nicholas Taleb is the world's greatest living teacher. In The Black Swan, Taleb's second book for laypeople, he gives a full treatment to concepts briefly explored in his first book "Fooled by Randomness." The Black Swan is basically a sequel to that book, but much more focused, detailed and scholarly. This is a book of serious philosophy that reads like a stand-up comedy routine. (Think Larry David...)
The Black Swan is probably the strongest statement of enlightened empiricism since Ernst Mach refused to acknowledge the existence of the atom. Of course, in theory, everyone today is supposed to be an empiricist - all right-thinking intellectuals claim to base their views solely on positive scientific observation. But very few sincerely confront the implications of rigorous empiricism. Specifically, few confront "the problem of induction," illustrated here by the story of the black swan.
Briefly: observing an event once does not predict it will occur again in the future. This remains true regardless of the number of observations one adds to the pile. Or, as Taleb, recapitulating David Hume, has it: the observation of even a million white swans does not justify the statement "all swans are white." There is no way to know that somewhere out there a black swan is not hiding, disproving the rule and nullifying our "knowledge" of swans. The problem of induction tells us that we cannot really learn from our experiences. It makes knowledge very problematic, if not impossible. And yet, humans do behave -almost without exception- as though they believe that experience teaches us lessons. This is forgivable; there is no better path to knowledge. But before proceeding, one must account for the limits that the problem of induction places on our claims to knowledge. And humans seem, at every turn, to lack this critical self-awareness.
In one of the many humorous anecdotes that seem to comprise this entire book, Taleb recounts how he learned his extreme skepticism from his first boss, a French gentleman trader who insisted that he should not worry about the fluctuating values of economic indicators. (Indeed, Taleb proudly declares that, to this day, he remains blissfully ignorant of supposedly crucial "indicators" like housing starts and consumer spending. This is a shocking statement from a guy whose day job is managing a hedge fund.) Even if these "common knowledge" indicators are predictive of anything (dubious - see above), they are useless to you because everyone else is already accounting for them. They are "white swans," or common sense. Regardless of their magnitude, white swans are basically irrelevant to the trader - they have already been impounded into the market. In this environment, one can only profitably concern oneself with those bets which others are systematically ignoring - bets on those highly unlikely, but highly consequential events that utterly defy the conventional wisdom. What Taleb ought to worry about, the Frenchman warned, was not the prospect of a quarter-percent rise in interest rates, but a plane hitting the World Trade Center!
Yep, the precise facts of 9-11 were actually presaged by this French gentlemen, as a rogue wave that just might be lurking over the horizon. And, to the contemporary American mind, this is THE quintessential Black Swan. Of course, the Frenchman's insight was just a coincidence - the thing with Black Swans is that they cannot be foreseen.
Taleb explains that conventional social scientists use induction to collect data, which is then plotted on the good old Gaussian bellcurve. With characteristic silliness, Taleb dubs the land of the bellcurve "Mediocristan" - and informs us that it is the natural habitat of the white swan. He contrasts Mediocristan with "Extremistan" - where chaos reigns, the wholly unexpected happens, power laws and fractal geometry apply and the bellcurve does not. Taleb's fictional/metaphorical 'stans' share something with the 'stans' of the real world: very ill-defined borders. Indeed, one can never tell whether one is in the relatively safe territory of Mediocristan or if one has wandered into the lawless tribal regions of Extremistan. The bellcurve can only help you in Mediocristan, but you have no way of knowing whether you have strayed into Extremistan - beyond the bellcurve's jurisdiction. This means that bellcurves are of no reliable use, anywhere. The full implications of this take a while to sink in, and are sure to cause huge controversy. In July, Taleb will debate Charles Murray (author of -what else?- the Bell Curve). I'll let you know who wins.
Taleb frames his whole argument much more entertainingly than I could here, and he bolsters it with an astonishing command of both cutting-edge social science and the entire history of philosophy. This is an astonishing work of serious philosophy, and it reads like pulp fiction. Readers who enjoyed FBR will find here the same dry wit, the same literary erudition, and deep sense of the absurd that made that book so much fun. But this is better, by an order of magnitude - easily the best book I have read in 5 years. I smell a timely pop-science bestseller here to rival Gladwell or Surowiecki, but this is also a classic that will be read for decades to come.
on April 25, 2007
This is an entertaining and enlightening book, and fairly easy to read. It has an important message regarding how the world works; that the world is governed not by the predictable and the average, but by the random, the unknownable, the unpredictable -- big events or discoveries or unusual people that have big consequences. Change comes not uniformly but in unpredictable spurts. These are the Black Swans of the title: completedly unexpected and rare events or novel ideas or technologies that have a huge impact on the world. Indeed, Taleb argues that history itself is primarly driven by these Black Swans.
It is convincing argument, entertainingly presented with plenty of sarcasm, and indeed, anger, by Taleb. For example he rails against the academic community, economists (including specific names), and Nobel Prize committee. Considerable numbers of his arguments "ring true" to me, that is my experience in life confirms that they are more accurate than the traditional approach. Like any important work, 90% of what is in the book is not original; that does not make it less important. Taleb's contribution is in integrating the material together, and showing how these different ideas are tied to the Black Swan.
The themes include: winner-take-all phenonomen, numerous effects of randomness on the world, the invalidity of the Gaussian Bell Curve to most things in world, concepts of scalablity, numerous instabilities in the world, especially the modern world where information travels so quickly, the fallacies about people's inability to predict the future. The importance of these ideas, Taleb's ability to weave them together into a single theory, and the ability of this theory to change the way you look at the world, means the book easily deserves my highest recommendation.
However, the book does have many flaws, unfortunately -- unfortunate because I believe they will take away from the credibility of the message, which is in important one. The are numerous minor flaws such as, for example, the inexplicable invention of a fictional author (disclosed a few pages later), when certainly there must have been some real example that would have worked better. Another example is repeated jabs about the French; these may be amusing but I just don't think they have a place in work like this. There are also diatribes against specific people, including famous economists, which, though amusing, and possibly justified, demonstrate a high level of anger by author and take away from his credibility. Often he also overreaches, for example in saying the usual combination of anti-abortion and pro-death penalty or the opposite combined views of pro-abortion and anti-death penatly cannot be explained logically, when in fact widely known theories such as George Lakoff's (in Moral Politics) have explained hows these groups of views are entirely consistent.
Another flaw is that Taleb seems to go a little toward the extreme of saying that we can predict almost nothing about the future, and though he does not say so explicitly, this seems to imply we have no moral responsibility to the future. This, combined with Taleb's advice to the reader about their behavior based on the "Black Swan" view of world just rubbed me the wrong way, for several reasons. One is that Taleb personally has very little in common with most people; never having as far as I know had a regular career (essentially what he calls non-scalable, e.g. dentist, engineer, baker) he nevertheless recommends that people choose these kinds of careers rather than a scalable career (e.g. financial trader, author, actor which are subject to a few lucky successful people and a lot of failures). This advise is odd first because Taleb is in a non-scalable profession (derivatives trader, then hedge fund manager) -- indeed it appears he is quite wealthy. Even more odd because he says all these types of non-scalable types of work are boring and evens makes sarcastic comments (the book is extremely sarcasm heavy) for example about dentists being able to do well by diligently drilling teeth for 30 years. The second things that bothered me is that Taleb seems be somewhat amoral to me; in this type of book where plenty of his own emotions come through, plenty of his personality, he has plenty of criticism of others for their wrong models and wrong view of the world, and how this has hurt the world, but there remains a lack of moral responsibility to his advice.
Perhaps the best comparison I could make are to other important works that do not suffer from these flaws, for example the Age of Fallibility by George Soros and Irrational Exuberance by Robert Shiller (1st and 2nd editions). But probably Black Swan will sell better than either of these because of it's "edginess," i.e. aggresiveness; I personally have a distaste for this approach.
Despite my criticisms, the main ideas of the book as so important as to merit reading and indeed great consideration.
on July 23, 2007
I really wish this were a good book, because the basic idea behind it is original, important and clever. That makes Taleb's careless handling of his topic all the more disturbing.
The rock-solid foundation of this book is Taleb's insight that the most important events in history, and presumably to come in the future, are essentially unpredictable; they can't be forecast using the information we have prior to their occurrence. That's a huge point and Taleb goes on to offer some compelling evidence that it is indeed true. He uses the analogy of a Turkey deciding that humans must have his best interests at heart because they show up every day of his life to feed him a good meal, he projects that - based on all of his evidence - this will continue. This works great until a couple of days before Thanksgiving. Suddenly his predictions have failed him catastrophically.
Great idea, and - I believe - true. But Taleb undercuts his own thought baby with shoddy writing, poor research and personal opinion masquerading as evidence.
The writing: A well-written book allows a reader to flow naturally from one paragraph to the next and from one idea to the next, even when the subject matter is complex. Taleb's writing is tough to follow and slow to get through. Beyond that, you really struggle to comprehend what he is trying to get across to you for huge portions of this book.
The research: When Taleb used examples to back his ideas that came from fields with which I was unfamiliar, I felt pretty good about them. However, whenever he used examples from areas where I have deeper knowledge, I noticed that his knowledge was lacking badly (being a trader comes to mind). This started to make me question all of his supporting evidence.
The opinion: Taleb leans heavily on the idea that most of what happens in the world is luck, even when we try desperately to ascribe some sort of tangible cause to it. At one point he uses the example of Mac operating software being far superior to that of Windows, but Windows being dominant in the market. He chalks it up entirely to luck! I'm sure he'd say I'm falling prey to a logical fallacy, but Apple and Steve Jobs had a huge head start on Microsoft, but refused to let anyone else run their operating system - so to run it, you had to buy a Mac. Microsoft let anyone run their operating system and consequently took the dominant share of the market.
This book is really a shame. The idea is just too good to be used this poorly. It made me sad to read this thing. Taleb the thinker deserved a far better writer than Taleb the author. What a waste.
You might still try reading this to understand Taleb's idea, because it's a huge insight, but watch all of his other content because it's riddled with holes.
on February 28, 2011
Taleb's central premise is that we delude ourselves with popular stories, false knowledge, myths, overvalued facts, and the appearance of science. He calls this the narrative fallacy, and counsels, "The way to avoid the ills of the narrative fallacy is to favor experimentation over storytelling, experience over history, and clinical knowledge over theories." Good advice.
Given this push for what David Brooks calls "epistemological modesty," you may expect a humble book, -- and if so, you would be disappointed. Taleb lambasts the hubris of Wall Street, yet he is a product of this culture; and the book shows it. His belief in uncertainty combined with his sharp views is broadly ironic. Some reviewers call it arrogant.
I put the bravado aside, and even found it entertaining at times, for Taleb's case is well put, and the book is brisling with thoughtful aphorisms and vivid stories. Here are a few of my favorite lines:
- Luck is more important than skill.
- Risk is the most when you feel the safest.
- Look for evidence that proves your ideas wrong.
- There are no experts of things that move.
- Too much information becomes toxic.
- The wise plead ignorance to world events.
- We cannot compare current reality with an alternative.
- Our highest currency is respect.
- "Randomness" is unknowledge.
- Be prepared for multiple contingencies.
- "I don't know," is a sign of intelligence.
- We are swayed by the sensational.
- Seize every opportunity, for they are rare.
- Go to parties -- chitchat leads to breakthroughs.
These are thoughtful nuggets to consider. And despite the pride that occasionally dances on the pages, Taleb is a good writer and an even better philosopher. The book is part memoir, part postmodern treatise on skepticism, part rant. It is an idiosyncratic, fresh and fascinating narrative.
This book is also a full frontal assault on the Wall Street establishment that uses statistics, bell curves and Black-Scholes theory to sell portfolio allocation. For investors, Taleb advocates a "barbell strategy" where you put 85-90% of your money in cash or equivalents, and the remainder in extremely risky investments that are scalable. He goes on at some length to talk about the dynamics of scalable investments and scalable careers such as sales, venture capital, and entrepreneurial ventures. In the end, he recommends against entering scalable professions due to the many risks involved. More irony.
For those who do hit it big and make what Taleb calls FU money, he recommends a dedication to scholarship, for he sees the pursuit of money and material goods as a nightmare. And he warns that scalable success may not come for a long time, or it may never come, and sojourners in scalable professions will have to endure the cruelty of critics. This line of thinking feels balanced and wise.
I was fascinated when I read this book in the winter of 2008, partly because Taleb had correctly forecast a major stock market crash, and partly because I had recent experience working as a marketing consultant for a large Wall Street investment firm (which no longer exists). That consulting experience and this book have left an imprint on my mind.
I have not studied Edmond Burke or David Hume, so currently, Nassim Nicholas Taleb my favorite skeptic, and The Black Swan is one of my favorite books.
When Taleb was Tweeting, he praised "Straw Dogs" by the contemporary British philosopher, David Gray. Gray's book takes skepticism to new and brilliant heights, and in my option it flies over the top. Perhaps some day I will review Straw Dogs as well, but for now I'll stick with Black Swans.
Straw Dogs: Thoughts on Humans and Other Animals
on May 10, 2007
I'm a mathematician and former trader, and I've always enjoyed Taleb's work, from his technical tome on derivatives, "Dynamic Hedging," to the brilliant "Fooled by Randomness." These books provided a healthy dose of empirical skepticism about a field that sometimes gets carried away with its own "precise" models -- as well as some insightful commentary on why people are bad at recognizing randomness and making predictions, and how we should be wary of charlatans (and fools) trying to sell us false certainty, especially about financial markets. Unfortunately, "The Black Swan" doesn't say much that "Fooled by Randomness" didn't already say (and say better), and I was disappointed by most of the new material.
First, Taleb's ideas on uncertainty have gone a bit over the edge. Before, he denounced the poor use of over-simplified models (i.e. the bell curve) to model uncertainty; he now seems to have given up on models altogether (save for a brief and justified nod to Benoit Mandelbrot). Rather than just attack bad science, and encourage better science in its place, he seems to view the entire scientific enterprise as hopeless -- adopting the somewhat anti-intellectual attitude that we should stop trying to "understand" markets at all, and be more like Fat Tony, the trader from Brooklyn. His portrayal of mathematical finance types is a complete caricature, which is amusing because, whether he likes it or not, he's one of them! (Taleb has taught in the mathematical finance program at NYU's prestigious Courant Institute.) The idea that mainstream academics are too myopic to see beyond their bell-curve models is laughable, and in many cases, decades out of date -- even undergrads learn about the flaws in the Black-Scholes model, and the problem of "fat tails."
While "Fooled by Randomness" suggests (wisely) that we pay attention to the magnitude of events and not just their probabilities, in "The Black Swan" he throws out probability altogether. This results in some bizarre advice, such as that people should structure their lives (and financial portfolios) to capture "positive black swans," i.e. huge but unlikely turns of good fortune, because "unlikely" is a meaningless probabilistic notion. For example, he suggests that people should put 90% of their assets in extremely safe instruments (like T-bills), while gambling the remaining 10% on risky ventures and hoping to hit it big. He claims that this limits one's downside while waiting for a big windfall ... but what happens when the "risky" 10% gets wiped out in a year or two? Do you then start investing your remaining assets (possibly losing more), or do you just stick with low-yield T-bills for the rest of your life? Taleb seemingly hasn't thought it out that far. By the "positive black swan" logic, thousands of unemployed "actors," waiting for that big break that never comes, have the right idea -- not to mention people who waste their money on lottery tickets (hey, the downside is only a buck, but the upside is millions!). This seems to be a complete reversal from "Fooled by Randomness," which had a brighter view of skilled ("Mediocristan") pursuits like dentistry, where one avoids living at the behest of good or bad fortune altogether.
Finally, Taleb has always exuded snobbery in his writing -- in the past it has almost been charming -- but this time it quickly wears out its welcome. He never fails to remind the reader that he sees himself as an erudite "gentleman trader," a rogue philosopher among philistines and eggheads. Yawn.
I still give this book 3 stars, because it does have some decent content, but read "Fooled by Randomness" instead. If you've already read that book, there's no need to buy this one -- but if you're in the mood to read about the problems of uncertainty and prediction in the markets, check out "When Genius Failed" by Lowenstein, "A Random Walk Down Wall Street" by Malkiel, or (for the eggheads) "Fractals and Scaling in Finance" by Mandelbrot.
on September 8, 2008
As a mathematical statistician I am a little taken aback by Taleb's lack of scholarship in understanding and appreciating what professional statisticians do. He puts down economists, Nobel laureates, philosopher and statisticians among others. There is a degree of unseemly arrogance on his part and I am sure that some of the other 300 or so reviews on amazon take him to task on that.
It is a shame too because for many of us, it spoils the really good main point of the book which is that Black Swans exist, make predictions difficult if not impossible but can be handle in the stock trading business at least by using his barbell approach.
I found the first 1/3 rd of the book very philosophical extremely redundant yet provocative. The rest of the book was much more interesting to me particular the last few chapter which had the most technical discussion and many points to agree with and also to quibble with.
A Black Swan is an extreme event that is very rare but so significant that it creates instability in averages and can ruin predictions and be either castastrophic (the negative Black Swan) or bring great fortune (the positive Black Swan). These Black Swans are real and Taleb cites many examples. Taleb is also right with his point that some economists are blind to the Black Swan or at least the unpredictability of them. I have often seen major declines in the stock market explained after the fact with seemingly logical but very suspicious and dubious rationalizations. Taleb deserves credit for recognizing this and realizing that in the world he calls extremistan where the Black Swans exist they must be accounted for but no should attempt the futile business of predicting them!
He also recognizes that there is another world where the Gaussian distribution and other light-tailed parametric distributions prevail and he calls this the world of mediocrastan. Here, the usual parametric statistics is useful but in Taleb's view it is not very common in practice to be in a mediocrastan world. This is the world of parametric statistics and is the place where most elementary courses in statistics reside. But here is also where I think Taleb makes a big mistake. He assume that this is the world where all statisticians and econometricians live and play and so these teachings are irrelevant to the practical world. Well, in many of the areas he discusses the parametric statistical models do not work. But probabilist, statisticians and econometricians have realized this for at least the past 60 years. In the 1930s and 1940s the field of nonparametric statistics developed through the work of Pitman, Mann and Whitney and Wilcoxon to name a few. Also the theory of extreme value distributions goes back to Fisher and Tippett in 1929 and was rigorously developed by Gnedenko in the 1940s. Nonparametric statistics deals with general distributions that do not have a simple parametric form and includes the heavy-tailed distributions that Taleb cares about. Also the asymptotic theory of extreme values that Fisher and Tippett, Gumbel and Gnedenko discovered showed that the extreme events had systematic behavior based on the three extreme-value types of distributions. So the extremes can be treated using asymptotic statistical theory just as well as the averages can be characterized asymptotically through the central limit theorem and the stable laws (in the case of a heavy-tailed population distribution). So in some ways Taleb is off and out of gas because he doesn't address or perhaps is even ignorant of this theory.
In the area of finance as well as in other areas, time series models have been useful in developing forecasts. In the world of mediocrastan the Box-Jenkins ARIMA models are very useful for problems in forecast and stochastic control. This was well established with the very popular book by Box and Jenkins that was first published in 1970. However financial data often falls into the world of extremistan and the stationary distributions when they exist are non-Gaussian and heavy-tailed. It is in this context that ARIMA models fail but the statisticians and econometricians have developed other models including the GARCH models which handle this type of data and allow for better predictions. Taleb mentions the GARCH models but only to make fun of them in a very superficial way that does not discuss any of the mathematics associated with these models. Again, I am not sure if Taleb is ignorant about this body of literature or just dismisses it because he see other models that cannot be used to predict as more appropriate.
Taleb is enamored with Mandelbrot and his theory of fractal geometry and the apparent natural properties of fractals. Well at least fractals look like coastlines on the world globe as well as other common items in our natural environment. But is this enough to say that fractals are the only models relevant to extremistan? I am not yet convinced.
This August I went to the Joint Statistical Meetings in Denver. There was a session on the Black Swan and to his credit Taleb was brave enough to accept the invitation of the statistical community to come to discuss the issues in his book. Unfortunately, I was not able to attend that session. But it got mew curious enough to want to read the book and see what Taleb's premise was all about. I do not yet know much about what came out of that session. I hope that at least Mr. Taleb came out of it with a better appreciation of the intelligence of statisticians and the more sophisticated models that he appears to be ignorant of based on the lack of discussion of them in his book.
Another branch of nonparametric statistics developed in the 1970s that is now called resampling methods. One of the more successful of these methods is the bootstrap. I have done some research into bootstrap methods as well as having authored a text on the topic. I believe that the bootstrap approach to time series analysis is another way that these time series with non-Gaussian innovation distributions or the stationary distributions of the time series model can be handled. I am not yet convinced that in the world of extremistan the hope of some form of forecasting must be abandoned as is Taleb's thesis.
on June 19, 2007
After reading "Fooled By Randomness", I eagerly looked forward to reading Taleb's latest book, only to be disappointed. He mentions both in the prologue and acknowledgments, "the book just wrote itself", and it shows. He could have fitted most of the 300 pages into 50 and gotten his points across. In any event, this book does not add anything more to "Fooled By Randomness" (194 pages) and is often rambling and incoherent. Perhaps if one read The Black Swan first, it may have been interesting but not if you read Taleb's previous excellent book.
on June 16, 2009
I loved Fooled by Randomness. I recommended it to friends, colleagues and candidates. Beside thought-provoking comments on chance and financial markets, Taleb's previous book was a cheerful but cruel variation on the theme of the confusion between success and luck, a subject which has been discussed to death in literature, and which comes down to the question which has probably agitated people ever since ambitious young men walked the streets of Sumer and Akkad, and possibly earlier, being: "Why Am I Not More Successful ?".
In Black Swan, Nassim Taleb abandons social critique to focus on philosophy, which unfortunately was the weakest part in Fooled by Randomness. We get several hundred pages of anecdotes and curiosities about Taleb's life, statistics, finance, and more about Taleb, all in a pretentious tone, which I found repetitive and boring (but which some apparently find entertaining). In my view, his main weakness is his poor sense of History - which could come in handy in the study of dynamic phenomena over long periods. While plodding through Taleb's ramblings, I had the impression that what's really missing is having an historical (rather than statistical or mathematical) perspective on events. As for the "Black Swan" concept, it is theoretically worthless: since any event can be explained ex-post, a "Black Swan" is merely a pretentious term for "unforeseen event with major consequences". Incidentally, I find it paradoxical that someone who endeavours to write on uncertainty should be so certain of himself.
And don't try Taleb's approach to risk management, which is essentially forgetting about unfavourable events since they are not predictable. I seem to understand that the author takes a dim view of planning, but he should think again. Planning is what people do when they have to prepare for an uncertain future (like the military does, for example). One of the keys to good planning is general knowledge: reading the newspapers for example, something Taleb takes a misplaced pride in not doing.
on September 29, 2008
It takes Nassim Nicholas Taleb almost 300 pages to say the following: "$@&% happens. And if you use the classical bell curve to predict when $@&% will happen anywhere outside of a casino, extreme $@&% will happen more than you would expect and you could be hurt by it".
That's it. Read the book if you must, but I'm saving you the cost, and pain of having to find this out yourself. The rest of "Black Swan" is just pointless pontificating by an ego with a 2 book contract whose ideas ran out 3/4 of the way through his previous book.
How I got here:
Reading John Robb's excellent "Brave New War" left me with a real desire to research the references he used in its creation. Taleb's "Fooled By Randomness" and "Black Swan" articles were among the references listed. I read "FBR" first and found it very enjoyable, informative read. He introduced the black swan concept in that book, and it was self-explanatory within the context. I picked up "Black Swan" to complete the set of Robb's references.
"Black Swan" is labor to get through. I had to force myself to finish it, where "Fooled By Randomness" breezed by. Not that it is difficult or too abstract. It's just tedious. Poorly paced, loaded with filler and pointless autobiographical notes, scattered historical references without much relevance to the topic at hand.
There were exactly 2 real-world relevant points in "Black Swan". The first is that in order to protect against financial black swans, individual investors should allocate funds according to their desired risk level, with a majority in safe havens like T-bills, with a small stake in high-risk, high-yield areas. For all of his years in the finance community, Taleb spouts wisdom you can read on a brochure for Fidelity Investments.
His second piece of advice was in a foot note, that as of 2006, he thought Freddie Mac was going to fail. Again, I'm just a nobody, but I saw this in 2003.
Really, the rest of the book is an ego stroke where Taleb uses the book as a sort of "magic mirror" to ask the audience to tell him "is he not the fairest of all?".
Historical figures and movements like Sixtus Empiricus and his Pyrrhonian skepticism, Henri Poincare and Bertrand Russell are mentioned but how they are integrated into the concept of extraordinary events happening in life beyond an "it's better to reserve judgment because you just... can't... tell.. what... could ... happen". Why bring these people in? Were they the only skeptics who advocated such thoughts? Or were they chosen to emphasize a fault in the author? (Ah ha! See my "Sins of the author point #3)
The author's sins:
But really, what put me over the top was his sloppy egotism. After the success of "FBR", Taleb must've thought he could stretch the black swan concept into an entire book. But once he got into the actual job of writing, he found he had to pad the text with many of the sure signs of reading an egomaniac's work:
1. The author refers to himself in the third person. Several times, Taleb asks himself questions "If you ask me, 'NNT, what should I do?' Well, the answer is clear ..."
2.The author uses archaic terms to describe his ancestry, to enhance his social standing. Despite clearly stating growing up amid the Lebanese Civil War, Taleb insists on calling himself of "Levant origin". While this is technically true, it's an obscure term in modern language used mostly in archaeology and history to describe the region during the Crusades. It's similar to the way that modern Iranian expatriates insist they are Persian, and not Iranian, thus creating a more romantic and mysterious character. Taleb intentionally uses "Levant" to conjure up a time when the eastern Mediterranean was populated by "gentlemen of leisure" with a high social standing, and not "Lebananese" with all of the current western-associated imagery that goes with it. I see it as a pathology of self-loathing to not admit the country you came from. I don't walk around saying I'm Prussian because I find it more romantic than saying I had German grandparents.
3. The author paints himself fighting a lonely fight against "the man/the system/the machine". What a load. Countless examples in "Black Swan" of Taleb being a rebel for the sake of being a rebel grow so tiring and again, pointless. "I never wear neck ties at my job." "I don't read the newspaper." Super Taleb. Fight the power. What about black swans again? Even his historical references are chosen to be figures who were seen as rebels in their time, because they advocated a viewpoint contrary to at-the-time popular dogma. His choice may also be almost deliberately obscure, to invoke a "I know someone you don't" childishness.
4. The author goes to lengths to paint himself as a man of the people. His assertions about of his choice of friends and who he spends his time with (and thus, implicitly assures the reader that this person is therefore more worthy of success) are "Brooklyn types" rather than stuffed-shirt Ph.Ds who Taleb imagines deserving nothing better than "a rat stuffed down their collar". This seems more Homer Simpson than "Wall Street wizard". Within the context, I understand his 2-D caricatures, but where he goes at great lengths to invoke complexity into everyday life, to paint personalities with such flat, stereotypical attributes is almost insulting. It's hack writing at best.
5. But still the author is a stuffed shirt who knows much cooler people than you do, dear reader. Guess who hung out with Umberto Eco? Benoit Mandelbrot? Various Nobel laureates? Not you. Taleb. Uh huh. Taleb, can we force you to take your arm and stop patting yourself on the back and use it to write something worthwhile? Pretty please? With some Brooklyn sugar on it?
There are more, to be sure, but let's just leave this review at "Read 'Fooled By Randomness', skip 'Black Swan'"