Book Review – The Black Swan

I enjoyed this book very much when I read it a couple of years ago.  While lengthy, it provides a very enjoyable insight into the mind of a very intelligent man, and argues against some fundamental human biases and the need to incorporate knowledge of them into our own modeling of markets and other industries.

The fundamental notion of this book is the “black swan” … that is, the extremely rare event that one almost never observes, but which defines.

1. People do not think about “exponential” distributions correctly.  They are built to understand gaussian distributions (or bell curves, in other words).  Non-linearity is just not something humans perceive well.

2. We do a very poor job of imagining or accounting for that which we have never experienced or seen.

3. Many experts are anything but.  It behooves you to think at a macro level about just how “expert” or “knowledgeable” someone can actually be at something.  Be appropriately skeptical.

4. Scalable jobs and technology displace the “good” or “better” segments of the workforce.  Would you buy a CD of the 10th best violinist in the world when there’s a CD of the best one out?  These kinds of effects create massive winners and a bunch of losers.

5. We prefer to focus on individual and easily understood narratives and events over the true complexity and causation of such events.  The book refers to this as the “narrative fallacy.”  This is a valuable insight, and one that I have extended into observations and arguments in politics, the media, etc.  It is exploited constantly by the media by making the public react to statistically insignificant, but gross or absurd, events.

6. We have a preference for the constant and predictable, as opposed to the lumpy and big.  This leaves a lot of room for making money in lumpy ways, if one has the emotional fortitude and intelligence to make the right calls.

Definitely a good read.  I often think of examples in this book when I refer to different events as they occur.  I also gained more of an appreciation for philosophy after observing how Taleb weaves his way through different thinking approaches.  I hope I’ll be able to spend more time in that area of study someday.

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