“Though Mr Taleb's prime agenda is to deal with the true nature of randomness in The Black Swan, the book is a veritable tour de force for those interested in behavioural finance. In essence black swans are completely unpredictable but highly consequential events that lend themselves to glib rationalisation after the fact.
To a large extent this is because of the mental predilection to seek order in randomness by stringing together a bunch of scattered observations into a coherent and credible narrative.This failing is further abetted by the insatiable desire to seek patterns which might provide predictive value. The human urge for precision based on deductive reasoning is the root cause of the evil. Even worse, we often confuse skill with luck ( the basic message in Taleb's highly rated prequel Fooled by Randomness).
Abandon the constant need to predict the future and seek out forecasts on everything under the sun. Better to develop a trace of humility, recognize and accept our ignorance in most matters of chance and begin to expect the unexpected rather than seek comfort by being at the centre of the herd.
Gradual change dominates our mindset, yet in reality actual change is "almost always outlandish". Taleb drives home the point by transporting us to Mediocristan and Extremistan. Mediocristan corresponds to the conventional world of classical staistics and probability theory taught in university classrooms. Events conform to a predictable pattern with few outliers and a bell curve which reflects convergence to the "mean". Extremistan is truly the domain of wild randomness, driven by the fractal mathematics described by Benoit Mandelbrot. Distributions follow a power law and a single event can totally alter the averages and the shape of the curve. Domain specificity, or the fact that our thinking/reaction/intuition is dependent on the context in which the matter is presented, vitiates our ability to cope with extreme outcomes. Black swans linger in serene ponds found in Extremistan but sometimes migrate for environmental reasons to Mediocristan ! And that is the moment hell breaks loose. The semantics of the migratory journey is what one needs to remember : absence of proof does not constitute proof of absence.
Despite Mr Taleb's odd facetious comments and desperate angst, he has some advice to offer that is well worth listening to.
1. Look for ways to foster serendipitous developments.
2.Don't be ashamed of making mistakes as long as you learn from them.
3.Always be prepared to cope with disaster.
4.Accept that you will sometimes be fooled but confine it to small matters.
5.Far better to be approximately right than precisely wrong.
In conclusion, The Black Swan conforms to its definition - kaleidoscopic and unpredictable in its sheer sweep, thought provoking, rare in its willingness to seriously challenge the intellectual status quo and truly enjoyable to read. The beauty is once you finish reading the book, the message seems obvious - thankfully Mr Taleb is approximately right rather than precisely wrong. ”
Sanjoy147 wrote this review Tuesday, September 11 2007.
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