The Black Swan is about the impact of highly improbable events, from bestsellers to natural disasters, and the human tendency to rationalise, creating a narrative fallacy that underlies erroneous predictions for the future. Considered a rallying cry to ignore the experts, the book is based on the Nassim Taleb’s lifelong passion and work as quant analyst and academic.
The Black Swan Summary
First published in 2007, Nassim Taleb’s The Black Swan became an instant bestseller in financial circles, as economists struggled with the 2008 Global Financial Crisis.
The central premise of the book, that we are blind to the impact of catastrophic random events, is detailed over 300 pages of lucid, funny and thought provoking text that explains how and why society attempts to tame our inherently chaotic lives with the false certainty of narrative, and why we are programmed to accept this until events prove otherwise.
Below are some of the key insights from the book.
Key Insights
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- Just because there is no evidence of black swans it does not follow that there is evidence of no black swans – The induction problem.
- You can see this logic by charting at the daily feeding of Turkeys relative to slaughter before Thanksgiving.
- Some domains are linear (e.g. height, weight) while others are scalable (e.g. net worth, speculation, publishing). For scalable domains, Black Swans have an oversized impact on the mean, destroying predictions that use the apparatus of the non-scalable domains – Mediocristan vs. Extremistan
- Our brains are programmed to accept the narrative fallacy in order to make sense of the events and complex stimuli that occur around us.
- The impact of silent evidence is ignored (e.g. Phoenician literature) as history is always written by the winners where those that survive/succeed frame the tale.
- Because we primarily interact with scalable domains, we are unable to predict with any accuracy how events will unfold. Even if we have domain specific knowledge, this can actually inhibit the accuracy of our predictions.
- Rather than a normal distribution, probabilities unfold like fractal branches. This makes it easier to mentally work forward then it is to work backwards.
- In such circumstances, it is better to invest in sure things (e.g. bonds, cash) and wild speculation (e.g. venture capital) then attempt optimal portfolio management strategies that mislead investors on risk.
- The law of large numbers applies to quantum particles preventing a coffee cup from jumping – ironing out the fractal nature of randomness.
- Superintelligence would also be aware of human control and could potentially withhold a treacherous turn until certain of successful escape.
- Mandelbrotian fractal probabilities allow for outlier events beyond the curve, ensuring that a model captures some notion that an unseen Black Swan event will occur.
- Over the past 50 years, 50% of the value in the S&P 500 was driven by just the 10 most dramatic days of stock market actively.
- Every human being existing is itself a Black Swan event akin to a speck of dust compared with the size of a planet many times bigger than Earth.