This must be one of my favourite books and a must read. Have you ever listened to typical economist or financial analyst in a party and became totally confused by the terminology used, mostly reserved to the so-called professionals. Finally you just start nodding, and accept that this guy must know what he’s talking about. Well guess what, all the people nodding, and quite possibly the speaker himself don’t understand, because it’s all mambo jambo. Finally Nassim Taleb, someone, outside the group-think container, comes along and says just what everyone wanted to say, I don’t understand what the hell you’re saying.
The philosopher runs deep in this author. The title of the book, the analogy, which applies to many things, scientists take note pls, is: Just because no one has ever seen a Black Swan does not mean they don’t exist. The theory seems sound until, as they have, Black Swans are discovered and then the theory Lock, Stock and Barrel gets thrown down the trash. Black Swans didn’t just appear to discard the theory, but they always existed, without ever being witnessed. There are so many theories like this, science is infested by them, and the science of economics and complex systems lead the way. Better to say nothing, or “I don’t know” than BS, unless you get paid for it, which has, and is still the case.
Nassim Taleb, is a great writer first and foremost. His studies in the humanities I have no doubt helped him look at things from outside the box. A total underdog, with less expertise in the academic discipline of economics than most of them, proved them, the economists, all wrong. What is satisfying, and has got this author in trouble in academia, is the way he does it in Black Swan. He takes out a foundational pillar of risk assessment by produces a solid, and convincing argument in words understood by most. There is out there a high risk events that cannot be assessed or predicted, he calls them “Black Swan Events” and brings, the risk mitigation pillar, the floor and the building of economics. The whole point about unpredictable events is that they are unpredictable, and further more because they are unpredictable you can’t even say they are unlikely to happen with any certainty whatsoever.
In this he exposes the analysts. All financial models and predictions omit variables for what they call a “Fat Tail” or Black Swan Event for couple of reasons. Firstly, it cannot be quantified or predicted, so any inclusion of it to existing models would be less accurate than a shot in the dark. Secondly, and probably more relevant, is its catastrophic nature and effects, which would generally deter investors once they understand the downside. I like the analogy he uses of the Turkey captured in the wild and from the Turkey’s point of view, life has improved, it gets groomed, protected and fed everyday, so from its very narrow perspective the Turkey deduces its life to be better, until the day Turkey realizes the plan for it to be served in a platter to be eaten.
This book is for the ages, because there aren’t too many people who are well read and have a wide spectrum of knowledge as Taleb, from the humanities, to ancient philosophies, history, science the book is filled with stimulating anecdotes. He brings about a holistic approach rarely found in our detailed filled worlds, with specialised terminologies, only understood to the specialists.
He has also written two other excellent books, one before this book, called Fooled By Randomness, and the other after this one called Antifragile. While they overlap in places, they are engaging reads, and continue on the narrative.