Blogging the Bookshelf

Blogging my bookshelf – one book at a time

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"The Black Swan, The Impact of the Highly Improbable", Nassim Nicholas Taleb

June 3rd, 2009 · No Comments · Policy

blackswan2Synopsis: Highly improbable and unpredictable events are the main drivers of change in society and as such forming predictions of future events or developing explanations for past events is futile. If you go around using the words “will” or “because” you’re a very silly boy.

My Take: Hmmm. An interesting concept and more power to anyone who sets out to tear down established paradigms. But if you are questioning fundamental concepts you have some pretty high logical and evidentiary hurdles to clear.

NNT doesn’t help his cause in this regard by having produced a really poorly written book. Over long and repetitive, it doesn’t do the reader any favours. Additionally I found the author to be intolerably and blindly egocentric. “Everyone is a fool but me” and “I have nothing but contempt for those I am critiquing” were reoccurring themes that I found pretty distasteful. Given that a major part of his argument is the foolish arrogance of human nature this was amusingly ironic. Despite all of this, given the innovativeness of the book’s premise, I tried to look past this personal dislike and judge his underlying arguments (though it was a real struggle).

At the end of the day I don’t think NNT comes close to making out his major thesis, but he is successful in making a range of useful, but less all encompassing points along the way. I think he establishes that human beings fail to adequately take into account the unexpected and that the unexpected happens much more than we think and has a much greater impact than we think. Well and good. But NNT’s claim that the entire sweep of history has been directed by unexpected events is just reaching too far. The logical conclusion of this premise is that any planning or predicitive analysis of any kind is pointless. Quite simply, NNT just didn’t produce enough evidence to convince me that every business executive, banker, financial analyst and policy maker in the world is spending a large part of their days wasting time. I just don’t buy it. A conclusion along the lines of “You’re not as smart as you think. Keep in mind that it’s better to be generally right rather than specifically wrong” would have been a valuable and a more credible conclusion. Unfortunately the author’s ego wouldn’t permit it.

Tyler Cowan at Marginal Revolution sums it up well:

Oddly, Taleb’s argument is weakest in the area he knows best, namely finance. Only on Wall Street do people seem to give proper credence—not too much, not too little—to very unlikely events. It is easy enough to use hindsight to identify the black swans Wall Street has missed, such as stock-price crashes. But it is harder to argue that the market undervalues surprise more generally. Stock and bond markets offer simple ways to bet on black swans. In financial terminology, you can purchase an option that is “deeply out of the money”; for instance, you
can bet that Google shares will rise or fall in value an enormous amount over the next three months. These investments pay off precisely when the rest of the market does not anticipate the scope for surprise.

Yet “long-shot” strategies are well-studied, and they do not yield extra profit. In other words, organized securities markets track rare and unpredictable events as well as the current state of knowledge will allow. If you don’t believe me, it is easy enough to bet on the Los Angeles Clippers to win the 2008 NBA title, or to bet on the longest odds at the racetrack. Such actions are hardly the path to either happiness or riches.

Finally, I have a habit of dog earing the bottom corner of pages in books where interesting points I might want to refer to in the future or consider more are made. I should note that I made more of these dog ears in this book than probably any other I’ve read. Admittedly many of these were dog ears made in contemptuous disagreement, but at the very least I think this is an indicator that this book got me thinking.

Worth a read as a bit of a thought exercise.

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  • I agree with your criticisms, but still liked the book – and indeed thought it was a good one in it’s own eccentric way.