The Black Swan

black swan

The Black Swan: The Impact of the Highly Improbable’ is a book by Lebanese American, philosopher Nassim Nicholas Taleb. 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, after the fact. 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.

Taleb, bestselling author of ‘Fooled by Randomness,’ treats uncertainty and randomness as a single idea. The main idea in Taleb’s book is not to attempt to predict Black Swan Events, but to build robustness into negative ones that occur and being 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 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.’ 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.’

Taleb acknowledges a contradiction in the book. He uses an exact metaphor, ‘Black Swan Theory,’ 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.’ 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.

In the second chapter, Taleb tells the story of the author, 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.

In the third chapter, Taleb introduces the concepts of ‘Extremistan’ and ‘Mediocristan.’ He uses them to define predictability in the environment one is studying. Mediocristan environments safely can use a normal (bell-shaped) distribution. In Extremistan environments a normal n distribution is assumed at one’s peril.

The term black swan was a Latin expression — its oldest reference is in the poet Juvenal expression that ‘a good person is as rare as a black swan.’ 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. Thus, the black swan is an oft cited reference in philosophical discussions of the improbable.

Rare and improbable events do occur much more than we dare to think. Our thinking usually is limited in scope and we make assumptions based on what we see, know, and assume. 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 do change.

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.

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).

Why are humans 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. 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.

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