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Bestselling author Nassim Nicholas Taleb continues his exploration of randomness in his fascinating new book, The Black Swan, in which he examines the influence of highly improbable and unpredictable events that have massive impact. Engaging and enlightening, The Black Swan is a book that may change the way you think about the world, a book that Chris Anderson calls, “a delightful romp through history, economics, and the frailties of human nature.” See Anderson’s entire guest review below.

Four hundred years ago, Francis Bacon warned that our minds are wired to deceive us. “Beware the fallacies into which undisciplined thinkers most easily fall–they are the real distorting prisms of human nature.” Chief among them: “Assuming more order than exists in chaotic nature.” Now consider the typical stock market report: “Today investors bid shares down out of concern over Iranian oil production.” Sigh. We’re still doing it.

Our brains are wired for narrative, not statistical uncertainty. And so we tell ourselves simple stories to explain complex thing we don’t–and, most importantly, can’t–know. The truth is that we have no idea why stock markets go up or down on any given day, and whatever reason we give is sure to be grossly simplified, if not flat out wrong.

Nassim Nicholas Taleb first made this argument in Fooled by Randomness, an engaging look at the history and reasons for our predilection for self-deception when it comes to statistics. Now, in The Black Swan: the Impact of the Highly Improbable, he focuses on that most dismal of sciences, predicting the future. Forecasting is not just at the heart of Wall Street, but it’s something each of us does every time we make an insurance payment or strap on a seat belt.

The problem, Nassim explains, is that we place too much weight on the odds that past events will repeat (diligently trying to follow the path of the “millionaire next door,” when unrepeatable chance is a better explanation). Instead, the really important events are rare and unpredictable. He calls them Black Swans, which is a reference to a 17th century philosophical thought experiment. In Europe all anyone had ever seen were white swans; indeed, “all swans are white” had long been used as the standard example of a scientific truth. So what was the chance of seeing a black one? Impossible to calculate, or at least they were until 1697, when explorers found Cygnus atratus in Australia.

Nassim argues that most of the really big events in our world are rare and unpredictable, and thus trying to extract generalizable stories to explain them may be emotionally satisfying, but it’s practically useless. September 11th is one such example, and stock market crashes are another. Or, as he puts it, “History does not crawl, it jumps.” Our assumptions grow out of the bell-curve predictability of what he calls “Mediocristan,” while our world is really shaped by the wild powerlaw swings of “Extremistan.”

In full disclosure, I’m a long admirer of Taleb’s work and a few of my comments on drafts found their way into the book. I, too, look at the world through the powerlaw lens, and I too find that it reveals how many of our assumptions are wrong. But Taleb takes this to a new level with a delightful romp through history, economics, and the frailties of human nature. –Chris Anderson

Customer Reviews

Fascinating but lengthy:

Nissim Taleb has a great point about “Black Swan” events (the unexpected or highly improbable) and the unpredictable nature of many major events. However, the book is quite lengthy and I found it repetitive going over what seemed to be the same points over and over.

Don’t get me wrong - there are still some great concepts here and people do tend to try to fit things into patterns, feel overconfident about our control or ability to manage often what are incontrollable random events, and we all need to be aware of our inability to predict the future to any reliable degree. It is a worthwhile read - you might just be wishing though it came in a slightly more condensed version.

Navel gazing:

Benjamin Franklin summed up the point of this book a long time ago when he said, “in this world nothing can be said to be certain, except death and taxes.” For a less compressed version of this phrase see the plays of William Shakespeare. Even just one or two would suffice. And there are many other novelists and playwrights that can offer the same insight: stuff happens.

Of course there our big outliers. Of course things can happen that are totally unpredictable. They happen every day — big things and small. If you agree with that idea, then you can skip this book.

The 300 Spartans were a “Black Swan” too….:

I have to admit a large bias.

I really like Nassim Taleb. I definitely don’t agree with everything he says, but I understand why he is trumpeting his views. Perhaps it is because I trade the markets too.

I have been trading through the same time period as Nassim. We trade with similar utility functions, in that we primarily profit from outliers. It is a terribly difficult way to profit, but the benefit is you understand the true nature of the human race the way it truly is, a jungle.

We need to make sure we are not the prey.

When he writes, he is often irritating. It is a device to make people think. Thinking is hard, and he knows that. But crucial.

Does he agree with many of the standards of measure that dictate “business as usual” in today’s commerce? No, very few. Because he believes, and proves, that the normal limits that business and typical education instill on the rest of society are limits that you likely can’t afford.

For example:

A belief that might only be incorrect just once in your lifetime better not be one that can cripple you financially when you are 68 and can’t recover. Or even a whole generation at the same time.

Thanks to Nassim Taleb’s Black Swan, there is clear indication and warning that the world’s foundations of thought, money and finance are not built on reality, but a form of “reality” that benefits a narrow slice of recipients.

He does believe in 2 plus 2 equalling 4. But, he gives clear evidence that there is too much reliance on “what everyone takes for granted” structures which can evaporate overnight when it doesn’t work for the “powers that be”.

Far from being a conspiracy promoter, Black Swan exposes the culprit that makes one feel overwhelmed or victimised by unexpected events to be OUR unwillingness to accept the fact that life isn’t a risk-free gesture and YOU have the responsibility to think for yourself. Or risk potentially dire consequences.

Joel Rensink

Archimedes Investments

Annoying–but fascinating nonetheless:

I have a lot of respect for Taleb having read his first book Fooled by Randomness (2001) to which I gave an enthusiastic, if critical, review. But this book is so self-indulgent and so breezily written that I just want to throw up my hands and say, “Get an editor that has the ability to edit you!”

What has happened–and this happens frequently–is that Professor Taleb, still basking in the success of Fooled by Randomness, has gotten so arrogant that he believes he can just write what comes into his head and presto! it’s a work of art and erudition, and so obviously a fine guide to right thinking that we should all applaud. Because of his prior success his editor spares the blue pencil even though Taleb is verbose, repetitive and digressive to the point of exasperation, and seemingly unaware that some of his pearls of wisdom are pinto beans. The irony is that this book’s sales will easily exceed those of Fooled by Randomness, and his editors and publishers will think this is a better book when it is not.

I think what he was trying to achieve is a style that he credits to one of his heroes, Henri Poincare. Taleb eulogizes, “The grand master wrote these wonders as serialized articles and composed them like extemporaneous speeches. As in every masterpiece, you see a mixture of repetitions, digressions, everything a ‘me too’ editor with a prepackaged mind would condemn–but these make his text even more readable owing to an iron consistency of thought.” (p. 174)

I think in Taleb’s case it is an iron redundancy. But then on the other hand I found in his unorthodox expression ideas that wondrously tense the mind and make for an interesting read, so that on balance I have to say the book is definitely worth reading.

In my review of Fooled by Randomness I wrote:

“The central image of this interesting, erudite and somewhat self-indulgent book is the “black swan,” a metaphor for both the rare event that eventually will happen, and for the fact that you can’t prove a negative (the problem of induction) because no matter how many white swans you count, you do not prove that the next one won’t be black.”

Well, I could write exactly the same thing in a review of this book. The Black Swan is an elaboration on his previous book. What is different about this book is the number of (fictional) stories he uses to make his points. This is somewhat ironic since he dismisses what he calls the “narrative fallacy.” (But I’m sure the nimble Dr. Taleb has an explanation.) This book has more characters than some Russian novels including Fat Tony, Nero, the author himself (”NNT”), Casanova, “Yevgenia Krasnova” (who apparently exists but not by that name), the nerdish “Dr. John,” etc.

A notable addition is his notion of “Mediocristan” and “Extremistan.” The former is a fairly predictable place. Two examples are casino games and human life expectancies. There is no possibility of black swans. In Extremistan, however, where there exist stock markets, politics/war and other highly complex real world entities, black swans are always lurking, ready to fly into your face with complete capriciousness.

Some high (or low) lights:

On page 155 Taleb claims that the “practitioners of something called game theory…are no better at predicting than university students.” No doubt he has some reference in mind, but I couldn’t find it in the endnotes–which brings me to another problem, the endnotes themselves. They are in a bizarre form without page or text reference. They are arranged by chapters, but there is no way to tell which page the note refers to. Taleb explains “I separate topics thematically; so general references will mostly be found in the chapter in which they first occur. I prefer to use a logical sequence here rather than stick to chapter division.” But what I think happened is that he just didn’t bother to keep track of his references and when he was told by his publishers that he needed them, he came up with this dodge. Annoying.

A nice take on complexity is this billiard ball example from page 178: The first impact is fairly easy to access with enough information about the balls, the table, the force of the cue ball, etc. The second is more difficult, but “to correctly compute the ninth impact, you need to take into account the gravitational pull of someone standing next to the table.” (!)

Taleb sees “nerd knowledge” or the overestimation of our understanding as a disease “severely ingrained in our institutions. It is why I fear governments and large corporations–it is hard to distinguish between them.” (p. 180)

“…[L]anguages grow organically; grammar is something people without anything more exciting to do in their lives codify into a book.” (p. 182)

Perhaps part of the genius of Taleb’s intent is to write wildly while insulting lots of people, especially anyone wearing a suit or having a corporate address, and especially anyone working on Wall Street. This way you invite not just book chat comment but the slings and arrows of outrageous indignation and affrontiveness. People write nasty reviews, people become incensed, Taleb replies in kind, etc., and the sales totals rise and book biz execs take notice.

An addendum on induction: the reason we cannot put black swans neatly into the bell shape curve that Taleb so rails against or assign a probability to their occurrence is that we don’t know the denominator. We know for example that a certain event–say a 10k-wide or bigger meteor hitting the earth–is very rare, the last one perhaps hit the earth 65 million years ago. So we know the numerator (a small number, maybe even only 1), but we have no idea what the universe of possibilities might be. The denominator is obviously a large number, but HOW large? We don’t know.

Insightful and Challenging:

Despite being the first book I read in 2008, I’m willing to bet that this may be the most interesting book I read all year.

As summarized by the front flap of the dust jacket: “A Black Swan is a highly improbable event with three 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.”

That last point that is most vicious. Human nature drives us to simplify, categorize, and explain, which in turn exposes us to further Black Swan events in the future. The book examines this flawed method of thinking through analysis of psychology, history, economics, mathematics, and other literary and scientific areas of study.

Its point is made primarily through anecdotal evidence and narrative story telling, a technique that is almost is necessitated by the topic at hand. Anyone seeking hard science is likely to walk away disappointed and unconvinced. However, those very same people stand to gain the most from reading The Black Swan with an open mind.

After driving home the central thesis of his book, Mr. Taleb offers a brief chapter of advice on how to operate in a world filled with uncertainty. The reading is not light, and can be challenging at times, but it is very rewarding and promotes a different, yet insightful, perspective.