The Black Swan: The Impact of the Highly Improbable | Nassim Nicholas Taleb

The Black Swan: The Impact of the Highly Improbable | Nassim Nicholas Taleb | original and great insight

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The Black Swan: Th...

	The Black Swan: The Impact of the Highly Improbable Nassim Nicholas Taleb Random House, 2007 - 400 pages average customer review:based on 341 reviews view larger image
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A black swan is a highly improbable event with three principal characteristics: It is unpredictable; it carries a massive impact; and, after the fact, we concoct an explanation that makes it appear less random, and more predictable, than it was. The astonishing success of Google was a black swan; so was 9/11. For Nassim Nicholas Taleb, black swans underlie almost everything about our world, from the rise of religions to events in our own personal lives.

Why do we not acknowledge the phenomenon of black swans until after they occur? Part of the answer, according to Taleb, is that humans are hardwired to learn specifics when they should be focused on generalities. We concentrate on things we already know and time and time again fail to take into consideration what we don?t know. We are, therefore, unable to truly estimate opportunities, too vulnerable to the impulse to simplify, narrate, and categorize, and not open enough to rewarding those who can imagine the ?impossible.?

For years, Taleb has studied how we fool ourselves into thinking we know more than we actually do. We restrict our thinking to the irrelevant and inconsequential, while large events continue to surprise us and shape our world. Now, in this revelatory book, Taleb explains everything we know about what we don?t know. He offers surprisingly simple tricks for dealing with black swans and benefiting from them.

Elegant, startling, and universal in its applications The Black Swan will change the way you look at the world. Taleb is a vastly entertaining writer, with wit, irreverence, and unusual stories to tell. He has a polymathic command of subjects ranging from cognitive science to business to probability theory. The Black Swan is a landmark book?itself a black swan.

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A must-read for a quant, but...

... but Dr. Taleb goes too far by claiming that the quantitative analysts, including statisticians, are (or even were) mesmerized by the Gaussian curve or any other quantitative concept, for that matter. Even the undergrads here at Purdue are taught to understand that the mean and standard deviation are not always descriptive of the distribution and that a single outlier can have a great impact on the fit of simple linear regression. As for PhD-level people, there are enough of us able to handle data with care and who are well aware that Pareto & Barabasi is not a cool label of Italian fashion. By the way, how come that Extreme Value Theory (at least 60 years old) is never mentioned in the book dedicated to the extreme?

I don't believe that such people as Markowitz, Scholes, or Samuelson thought even for a second that their job was to create models that would alleviate the hardship of the long-suffering investment banking community. That was never a requirement for academic promotion or the Nobel Prize, which was their ultimate goal, whether they admit it or not. Therefore, any "quant" who took those models at face value deserved all he got.

Most importantly, I believe such misguided model-worshippers have always been few in the industry, especially after 1998. MBA graduates, too, have enough sense to know what is what even after being through a Modern Portfolio Theory course. Courses like that, according to Dr. Taleb, have to be wiped out along with the academic disciples of Markowitz and Samuelson. But will that "ethnical cleansing" do any good?

Perhaps the sad truth is that in the industry both MBAs and PhDs quickly realized that claiming they can quantify any financial product generates a fat stream of immediate bonuses, although at the expense of possible (but surely very distant :) blowup. If that is the case, all those people consciously use bogus models as a front. Hence, contrary to what Dr. Taleb thinks, Nobel Prize winners and their followers in the academia are hardly to blame. So, why don't we leave the distinguished professors alone and turn to those who set the malign short-term incentives in financial institutions.

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original and great insight

This is the book I drag around everywhere, you can only read a few pages at a time because you need to think while digesting. the author is very knowledgable - sometimes too knowledgable, but that's a good thing, because he has a lot to say, a different point of view, a chip on his shoulder, intelligence to burn, a worldview bought to american shores, and he is conflicted about the class system - shrugging his shoulders at the suits, but flinging out big names here and there. No matter, it is worth the price of the book, because he stimulates thought. A sure sign of a good teacher, as well as tossing out more than a few investment strategies and his well-concieved notions about our financial system.
Love Taleb and hate him. I look forward to whatever he is working on now, and will go back & buy the Random book that everyone keeps referring to.

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Good read, but fooled by randomness is better

Black swans are rare, unpredicatable events that pack a big punch. As Teleb explains, they are not accounted for by modern financial theories. Black Swans are particularly relevant to today's market calamity...and they will likely arise many times in the remainder of our lifetimes...to our benefit...if we are prepared. The lesson is to prepare for these events...and to exploit them.

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