The Black Swan (Taleb book)

The Black Swan

Hardcover first edition
Author Nassim Nicholas Taleb
Country United States
Language English
Genre Epistemology, philosophy of science, Randomness
Publisher Random House (U.S.) Allen Lane (U.K.)
Publication date
 April 17, 2007
Media type Print (hardback)
Pages 400 pp (hardcover)
ISBN 978-1400063512 (U.S.), ISBN 978-0713999952 (U.K.)
OCLC 71833470
003/.54 22
LC Class Q375 .T35 2007
Preceded by Fooled by Randomness
Followed by The Bed of Procrustes

The Black Swan: The Impact of the Highly Improbable is a book by the essayist, scholar, philosopher and statistician Nassim Nicholas Taleb. It was released on April 17, 2007 by Random House. The book focuses on the extreme impact of certain kinds of rare and unpredictable events (outliers) and humans' tendency to find simplistic explanations for these events retrospectively. This theory has since become known as the black swan theory.

The book also covers subjects relating to knowledge, aesthetics, and ways of life, and uses elements of fiction in making its points. The author frequently shares anecdotes from his own life to elaborate his theories.

The book's first edition appeared in 2007 and was a commercial success. It spent 36 weeks on the New York Times best-seller list.[1] The second, expanded edition appeared in 2010. The book is part of Taleb's four volume philosophical essay on uncertainty, titled the Incerto and covers the following books: Antifragile (2012), The Black Swan (2007–2010), Fooled by Randomness (2001) and The Bed of Procrustes (2010).

Overview: Black Swan theory

Taleb, bestselling author of Fooled by Randomness, treats uncertainty and randomness as a single idea. See Black swan theory for Taleb's definition of a Black Swan event.

Coping with Black Swan events

The main idea in Taleb's book is not to attempt to predict Black Swan events, but to build robustness to negative ones that occur and to be able to exploit positive ones. Taleb contends that banks and trading firms are very vulnerable to hazardous Black Swan events and are exposed to losses beyond those that are predicted by their defective financial models.

The book's position is that a Black Swan event depends on the observer—using a simple 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

Nassim Nicholas Taleb refers to the book variously as an essay or a narrative with one single idea: "our blindness with respect to randomness, particularly large deviations."[2] It is Taleb's questioning of why this occurs and his explanations of it that drive the book forward.

The book's layout follows "a simple logic"[3] moving 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. 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, 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.[4]

Part one: Umberto Eco's anti-library, or how we seek validation

In the first chapter, the Black Swan theory first is 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.[5]

In the second chapter, Taleb discusses a neuroscientist named Yevgenia Nikolayevna Krasnova 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 Yevgenia became famous. This incident is described as a Black Swan event.

Taleb goes on to admit that the so-called author is a work of fiction. Yevgenia rejects the distinction between fiction and nonfiction. She also hates the very idea of enforcing things into well defined "categories", holding that the world generally is complex and not easy to define. Though female, the character is based, in part, autobiographically on the author (according to Taleb), who has many of the same traits.

In the third chapter, Taleb introduces the concepts of Extremistan and Mediocristan. He uses them as guides to define how predictable the environment one's studying is. Mediocristan environments safely can use Gaussian distribution. In Extremistan environments, a Gaussian distribution is used at one's peril.

Chapter four brings together the topics discussed earlier in the narrative, about a turkey. Taleb uses it to illustrate the philosophical problem of induction and how past performance is no indicator of future performance. 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.

Part Two: We just can't predict

In chapter thirteen Taleb discuss what can be done regarding epistemic arrogance. 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 and European and Asian stigma and embarrassment regarding failure: the latter is more tolerable of people taking small risks. He also describes the "barbell strategy" 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.

Arguments

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).[6] 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.[7] Thus, the black swan is an oft cited reference in philosophical discussions of the improbable. Aristotle's Prior Analytics most likely is the 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 premises of an argument may support a conclusion, but does 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). Hume's attack against induction and causation is based primarily on the limits of everyday experience and so too, the limitations of scientific knowledge.

Higher frequency

Rare and improbable events do occur much more than we dare to think.[8] Our thinking usually is limited in scope and we make assumptions based on what we see and know. Reality, however, is much more complicated and unpredictable than we think. Also, assumptions relevant to average situations are less relevant to irregular situations, especially when the "rules of the game" themselves change.

The huge effect

Extreme events do happen and have a great effect. The effects of extreme events are even higher due to the fact that they are unexpected. Examples given by Taleb are the September 11, 2001 attacks, the rise of the Internet and particularly Google, and World War I. The results of these were hardly thought of before but were tremendous.

Limits of human knowledge

Taleb's black swan is different from the earlier philosophical versions of the problem, specifically in epistemology, as it concerns a phenomenon with specific empirical and statistical properties which he calls "the fourth quadrant".[9] Taleb's problem is about epistemic limitations in some parts of the areas covered in decision making. These limitations are twofold: philosophical (mathematical) and empirical (human known epistemic biases). The philosophical problem is about the decrease in knowledge when it comes to rare events as these are not visible in past samples and therefore require a strong a priori, or an extrapolating theory; accordingly, predictions of events depend more and more on theories when their probability is small. In the fourth quadrant, knowledge is both uncertain and consequences are large, requiring more robustness.

Before Taleb, those who dealt with the notion of the improbable, such as Hume, Mill, and Popper focused on the problem of induction in logic, specifically, that of drawing general conclusions from specific observations. Taleb's Black Swan Event has a central and unique attribute, high impact. His claim is that almost all consequential events in history come from the unexpected—yet humans later convince themselves that these events are explainable in hindsight (bias).

Humans are often caught off guard by or slow to recognize the rare and novel, partly because built into the very nature of our experience is the propensity to extend existing knowledge and experience to future events and experiences. To exacerbate this natural propensity much of our cultural education both formal and otherwise is built upon historical knowledge forced on us by others. Of course both the natural physiological propensity and the cultural phenomenon are somewhat a necessary precondition to learning, since complete openness to every event would be inefficient. Bertrand Russell observed, "An open mind is an empty mind." So we cannot be completely open, but we must guard against being completely closed as well. It would be most efficacious if we could find a balance between the known and unknown and the limits of our knowledge and experience. The effect of unexpected events is likely integral to finding this balance. Thus, the rare and unexpected is far more significant to our formation of knowledge than people often imagine.

Taleb argues that the proposition "we know", in many cases, is an illusion, albeit a necessary one; the human mind tends to think it knows, but it does not always have a solid basis for this delusion of "I know". This notion that we do not know is very old, dated at least as far back as Socrates. The Socratic method of questioning and avowal of ignorance is the type of corrective action to the delusion that we know something completely and truly.

Similarly, to those who might argue that the advancement of science has rendered the world well-known, Taleb argues that while science added knowledge, we always run the risk of experiencing the improbable, rare, and novel. We can be shocked by this knowledge and experience or we can be open to it. As with the dictum of Socrates, "the only thing I know is that I do not know", which is as true as ever, Taleb concludes. Taleb further expands this idea of finite knowable worlds (e.g., a game) vs. infinite and thus unknowable worlds (our natural world) in what he calls the Ludic fallacy.

Not all experts deserve the title

Taleb also questions the authority of experts, asserting that the truth behind science is limited to certain areas and methods. In many areas having an academic degree and presenting oneself as a scientist is irrelevant. Indeed, authority can stifle empirical experience which, so many times, has proven to have a sounder basis for accuracy.

The narrative fallacy

Another issue is the "narrative fallacy"[10] which refers to our tendency to construct stories around facts, which in love for example may serve a purpose, but when someone begins to believe the stories and accommodate facts into the stories, they are likely to err. The historian Professor Hayden White discusses this phenomenon in his writings.

Praise and criticism

Style

Taleb's writing style is essayistic, mixing illustrative anecdotes and personal details with points of argument. Taleb describes his books as "expressed in the form of a personal essay with autobiographical sections, stories, parables, and philosophical, historical, and scientific discussions", while leaving the technical material to a separate text.[11][12] This is similar to Montaigne essays. This style has not gratified everyone. 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."[13] Gregg Easterbrook wrote a critical review of The Black Swan in the New York Times[14] to which Taleb replied with a list of logical errors, blaming Easterbrook for not having read the book.[15] Giles Foden, writing for The Guardian in 2007, described the book as insightful, but facetiously written, saying that Nassim's "dumbed-down" style was a central problem, especially in comparison to Taleb's Fooled by Randomness.[16]

Praise

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 2011 book Thinking, Fast and Slow.

Sales

Since being published in 2007, as of February 2011 it has sold close to 3 million copies. It spent 36 weeks on the[17] New York Times Bestseller list; 17 as hardcover and 19 weeks[18] as paperback. It was published in 32 languages.[19]

See also

Notes

  1. ↑ "Taleb Outsells Greenspan as Black Swan Gives Worst Turbulence". Bloomberg. March 27, 2008.
  2. ↑ Taleb 2007 p.xix.
  3. ↑ Taleb 2007 PROLOGUE p.xxviii.
  4. ↑ 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.
  5. ↑ Taleb 2007 PROLOGUE p8.
  6. ↑ Puhvel, J. (1984). "The Origin of Etruscan tusna ("Swan")". The American Journal of Philology 105 (2): 209. doi:10.2307/294875. JSTOR 294875.
  7. ↑ Taleb, Nassim Nicholas. "Opacity: What We Do Not See". Fooledbyrandomness.com. Retrieved 2010-10-01.
  8. ↑ http://users.math.yale.edu/~bbm3/web_pdfs/misbehaviorprelude.pdf
  9. ↑ The Fourth Quadrant and The Limits of Statistics
  10. ↑ Taleb 2007 Glossary p. 309.
  11. ↑ Antifragile: Things That Gain From Disorder, Random House, 2012
  12. ↑ https://docs.google.com/file/d/0B_31K_MP92hUNjljYjIyMzgtZTBmNS00MGMwLWIxNmQtYjMyNDFiYjY0MTJl/edit?hl=en_GB
  13. ↑ David Aldous, A critical review of Taleb, Nassim Nicholas. The Black Swan: The Impact of the Highly Improbable, A.M.S. Notices, March 2011, pp. 427–413
  14. ↑ Easterbrook, Gregg (April 22, 2007). "Possibly Maybe". The New York Times.
  15. ↑ http://www.fooledbyrandomness.com/easterbrook.pdf
  16. ↑ Foden, Giles (12 May 2007). "Stuck in Mediocristan". The Guardian. Retrieved 7 January 2015.
  17. ↑ http://www.businessweek.com/magazine/content/11_10/b4218047676960.htm
  18. ↑ Schuessler, Jennifer. "Hardcover". The New York Times.
  19. ↑ http://www.amazon.com/The-Black-Swan-Improbable-Robustness/dp/081297381X/ref=dp_ob_title_bk
  20. ↑ Taleb is the distinguished professor of risk engineering at NYU-Polytechnic and author of The Black Swan, which was dedicated to Mandelbrot

References

External links

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