Nassim Nicholas Taleb's book
has drawn a lot of attention since its publishing, especially due to the bold,
revolutionary ideas it promotes. It goes from general, psychological and
philosophical considerations to a rather technical thesis, challenging the statistical
bell-curve's usefulness.
Taleb’s arguments follow two
main directions: that there is much more randomness than people generally admit,
and that dealing with it is troublesome because of the way people think. According
to him, people should free themselves from the chains represented by statistics
and probabilities, by what they think they know, and should give the impossible
and luck, a chance.
There are numerous examples of
success stories that start with a mere accident, of people who thrive out of
pure luck (common sight in Extremistan), and also numerous stories of people
who struggle to be in control of everything and never exceed their condition
(the people of Mediocristan).
The world should give black
swans, and the highly improbable, a chance, should focus on knowing "how
to" rather than "what" moves the world. What would that bring
about? Probably a wave of uncontrollable consequences, but that is not
necessarily a bad thing, is it?
Summary
The black swan referred to in
the title is the one found in Australia, defying all previous observations according
to which all swans were white. It is used to prove that induction can never
bring certainty, as one exception is enough to invalidate the rule.
For the author, a black swan
is an outlier, an exception, an improbability with extreme impact for which,
after it happens, people create doubtful explanations (p. xviii). Relevant examples
would be the “Lebanese paradise” destruction after 1975, the crash of the stock
market in 1987, the USSR breakup, the 9/11 terrorist attack, and the internet's
development. Some black swans have positive outcomes, but others do not.
Taleb believes the world we
live in is one full of black swans with extreme consequences. People, no matter
their background, do not usually accept the existence of realities like
Extremistan or Mediocristan (p. 36), as the author calls them.
In the former, rewards are huge
and have nothing to do with time, skill and effort, but a lot to do with luck
and inequality rules. In the latter, a dull, predictable reality, jobs are
rewarded based on the time, skills and effort invested, and extremes are rare,
allowing a certain measure of equality.
The problem is that social
sciences refuse to accept that Extremistan exists and outliers are important
for society. Scientists and experts in all fields overestimate their knowledge
and overlook the importance of what they do not know.
They give people the illusion that
they understand, by selectively collecting and corroborating evidence or dead
thinkers' thoughts (p. xxvii), while the real problem is how they think. People
love stories, the “narrative fallacy” - believing in a less random world than
the world really is, the “ludic fallacy” – believing that games approximate
life, whereas they do not (p. 127).
Once they adopt a theory, people
have a hard time giving it up when confronted with new evidence. They overrate facts
relying on general knowledge, have a too narrow focus and depend too much on
self-proclaimed experts.
Taleb considers that real
experts have knowhow, and grain inspectors, chess masters, test pilots and
physicists are the best examples. Those who possess know-what, like judges,
stockbrokers, intelligence analysts, financial forecasters or political
scientists are not real experts. He appreciates that military planners are the
most knowledgeable, as they take into account the “unknown” (p. 127).
He offers many examples to
show that people do not like to leave anything to chance. He sarcastically quotes
financial press headlines interpreting unforeseen market shifts after they had
happened. When forecasts turn out right, expertise is used as an explanation,
but, when they are wrong, the experts are not to be blamed, or they have "nearly"
nailed it.
Taleb turns to research to
prove that, in economics and politics, not even the greatest experts, with
their sophisticated analysis tools, can offer more accurate predictions than
undergraduates using simple methods.
He states that many discoveries
are made accidentally, by people looking for completely different things, and
he gives the example of penicillin, laser or Viagra, with the latter designed to
regulate blood pressure. He adds that technology adventurers strive due to the
fact that common people worry about consequences (p.170).
The author declares himself against
Platonicity, against people's tendency to mistake maps for territories, to
focus on "forms" rather than on the reality. He proposes skeptic
idols like Hume, Hayek, Popper and others. He agrees with Popper’s idea that the
best way to verify a theory is to consider it false, and condemns the tendency
of using the lack of evidence against a theory as an argument to prove its
validity.
Evaluation
For Taleb, luck prevails over
talent and hard word. People should accept it and move on. Talented people should
focus on working in their field of interest, but remain alert to unexpected discoveries.
It is alright to plan small matters, but bigger ones should leave room for
trial and error.
When planning, one should
focus not on probability, but on the gravity of the potential consequences, no
matter how improbable. When investing, 85% of one's money should go into
something risk-free, like Treasury bills, and only the remaining 15% should be scattered
as venture capital.
Life should be seen as a
derivatives series. By cutting negative exposure, people actually limit their vulnerability
to the unknown (p. 329). The author advises them to consider as many opinions
as possible, to go to as many parties as possible.
The Black Swan abounds in practical, easy to follow, justified ideas.
Although some of them seem difficult to accept at first sight, they are so well
explained and exemplified that adhering to them becomes easy. Indeed, there are
many success stories in which luck plays a greater part than one would like to
admit.
The author believes that
evolution was survival of the luckiest, rather than survival of the fittest. And
he is right to point out to people's risk calculation weaknesses – after 9/11,
many gave up air travel considering highways safer, but the number of accidents
actually rose. Philosophical research is cited to show that facts can be
coherently interpreted using opposite explanations.
Taleb invites his readers to be
skeptical, so why not begin with his own book. Although supported by
convincing, well researched arguments, his exposition itself shows some weaknesses,
beginning with the very black swan.
The discovery of the creature
he named his book after, although contradicting all previous sightings, had no dramatic
consequences, or, at least, the author failed to discuss them, and no one
attempted to justify it. Another debatable issue would be the use of fictional
characters to sustain his point.
The author can only understand
they are fictional by reading the footnotes, and this is not one would expect
or want to find in a book on the perception and understanding of reality. The
use of narrative in the first part of the book, mostly anecdotes, to fight
narrative is not too helpful either, even though Taleb argues that a story is
needed for displacing another one (p. 28).
A closer look at the facts
leaves some question marks as well. For example, while he claims that experts
are mostly wrong, or not better than undergraduates at forecasting, he neglects
the fact that political scientists’ generally succeed to predict the following
events quite well and offer their reader the odds, so that the latter can
decide by themselves what to expect and take for granted.
Even the 9/11 example can be
challenged, since several terrorists were imprisoned in America for previously
attempting to blow up World Trade Center, and there were several clues that
something was being planned.
The American Statistician
published review articles in which four statisticians show that Taleb was
“statistically reckless”, ignoring those who study extremes (Lund, 189). He
disregarded Hume’s anti-induction principles by considering his biased and limited
statisticians' sample enough to allow him to assess that all statisticians are
Mediocristan dwellers (Westfall and Hilbe, 193).
Of course, the truth and
practicality of some of Taleb's ideas cannot be denied. Actually, it is
impossible not to notice the similarity between public administration and Mediocristan,
as a world in which people conform themselves to policy positions imposed by
the politicians they elected, action and moderate speech is expected from public
service members, and people are not supposed to get rich during their career.
But even public administration has its share of thinking practitioners, it is a
practical world in which people regard new theories with suspicion and hold success
stories in high esteem.
Conclusion
While the book's intended audience ranges from
academics and people with an already solid educational background to people
activating in public sector innovation and administration, as indicated by the
numerous notes (18 pages) and bibliography entries (27) from literature,
philosophy, social sciences and finances, the accessible language makes it an
interesting reading for anyone.
A detailed review of Taleb's work would require
analysis of all of the facts and ideas presented, but one thing can be
concluded based on the above observations: reading it can provide immense value
to the reader, as long as it is regarded with the very skepticism the author
recommends. Nothing should be taken for granted, and this book makes no
exception.
References
Lund, Robert. 'Revenge Of The
White Swan'. The American Statistician 61.3 (2007): 189-192.
Web.
Taleb, Nassim Nicholas. 'Black
Swans And The Domains Of Statistics'. The American Statistician 61.3
(2007): 198-200. Web.
Taleb, Nassim Nicholas. The
Black Swan. New York: Random House, 2007. Print.
Westfall, Peter H, and Joseph M
Hilbe. 'The Black Swan'. The American Statistician 61.3
(2007): 193-194. Web.
