The Black Swan (Taleb book)

The Black Swan
U.K. edition bookcover
Author(s)	Nassim Nicholas Taleb
Country	United States
Language	English
Genre(s)	Epistemology, philosophy of science
Publisher	Random House (U.S.) Allen Lane (U.K.)
Publication date	April 17, 2007
Media type	Print (Hardback)
Pages	400 pp (hardcover)
ISBN	ISBN 978-1400063512 (U.S.), 978-0713999952 (U.K.)
OCLC Number	71833470
Dewey Decimal	003/.54 22
LC Classification	Q375 .T35 2007
Preceded by	Fooled by Randomness
Followed by	The Bed of Procrustes: Philosophical and Practical Aphorisms

The Black Swan: The Impact of the Highly Improbable is a literary/philosophical book by the epistemologist Nassim Nicholas Taleb. The book focuses on the extreme impact of certain kinds of rare and unpredictable events (outliers) and humans' tendency to find simplistic explanations for these events retrospectively, after the fact. This theory has since become known as the black swan theory.

The book also covers subjects relating to knowledge, aesthetics, and ways of life, and uses elements of fiction in making its points.

The 2007 edition was a commercial success. It spent 17 weeks on the New York Times best-seller list.^[1]

Overview: Black Swan Theory

Taleb, bestselling author of Fooled by Randomness, treats uncertainty and randomness as a single idea. See Black swan theory for Taleb's definition of a Black Swan Event.

Sales

As of March 2009 according to Slate, The Black Swan sold close to 1.5 million copies.^[2] It also spent seventeen weeks on the New York Times Bestseller list^[3] and was translated into twenty-seven languages.^[3]

Coping with Black Swan Events

The main idea in Taleb's book is not to attempt to predict Black Swan Events, but to build robustness to negative ones that occur and being able to exploit positive ones. Taleb contends that banks and trading firms are very vulnerable to hazardous Black Swan Events and are exposed to losses beyond those that are predicted by their defective financial models.

The book's position is that a Black Swan Event depends on the observer—using a simple example, what may be a Black Swan surprise for a turkey is not a Black Swan surprise for its butcher—hence the objective should be to "avoid being the turkey" by identifying areas of vulnerability in order to "turn the Black Swans white".

Summary

Nassim Nicholas Taleb refers to the book variously as an essay or a narrative with one single idea: "our blindness with respect to randomness, particularly large deviations."^[4] It is Taleb's questioning of why this occurs and his explanations of it that drive the book forward.

The book's layout follows "a simple logic"^[5] moving from literary subjects in the beginning to scientific and mathematical subjects in the later portions. Part One and the beginning of Part Two delve into Psychology. Taleb addresses science and business in the latter half of Part Two and Part Three. Part Four contains advice on how to approach the world in the face of uncertainty and still enjoy life.

Taleb acknowledges a contradiction in the book. He uses an exact metaphor, Black Swan Idea to argue against the "unknown, the abstract, and imprecise uncertain--white ravens, pink elephants, or evaporating denizens of a remote planet orbiting Tau Ceti."

There is a contradiction; this book is a story, and I prefer to use stories and vignettes to illustrate our gullibility about stories and our preference for the dangerous compression of narratives.

You need a story to displace a story. Metaphors and stories are far more potent (alas) than ideas; they are also easier to remember and more fun to read.^[6]

Part one: Umberto Eco's anti-library, or how we seek validation

In the first chapter, the black swan theory first is discussed in relation to Taleb's coming of age in the Levant. The author then elucidates his approach to historical analysis. He describes history as opaque, essentially a black box of cause and effect. One sees events go in and events go out, but one has no way of determining which produced what effect. Taleb argues this is due to The Triplet of Opacity.^[7]

In the second chapter, Taleb tells the story of the author, Yevgenia Nikolayevna Krasnova, and her book A Story of Recursion. She published her book on the web and was discovered by a small publishing company; they published her unedited work and the book became an international bestseller. The small publishing firm became a big corporation, and Yevgenia became famous. This incident is described as a Black Swan Event. Taleb seems to be using "recursion" as a hint that he is predicting the story of his own book The Black Swan—Yevgenia's rejection of fiction and nonfiction as categories is reminiscent of Taleb's idea, and her character seems autobiographical as Taleb may be poking fun at his own intolerant temperament.

In the third chapter, Taleb introduces the concepts of Extremistan and Mediocristan. He uses them as guides to define how predictable is the environment one's studying. Mediocristan environments safely can use Gaussian distribution. In Extremistan environments a Gaussian distribution is used at one's peril.

Chapter four brings together the topics discussed earlier in the narrative, about a turkey. Taleb uses it to illustrate the philosophical problem of induction and how past performance is no indicator of future performance. He then takes the reader into the history of Skepticism.

In Chapter nine, Taleb outlines the multiple topics he previously has described and connects them as a single basic idea.

Arguments

The term black swan was a Latin expression — its oldest reference is in the poet Juvenal expression that "a good person is as rare as a black swan" ("rara avis in terris nigroque simillima cycno", 6.165).^[8] It was a common expression in 16th century London as a statement that describes impossibility, deriving from the old world presumption that 'all swans must be white', because all historical records of swans reported that they had white feathers.^[9] Thus, the black swan is an oft cited reference in philosophical discussions of the improbable. Aristotle's Prior Analytics most likely is the original reference that makes use of example syllogisms involving the predicates "white", "black", and "swan." More specifically Aristotle uses the white swan as an example of necessary relations and the black swan as improbable. This example may be used to demonstrate either deductive or inductive reasoning, however, neither form of reasoning is infallible since in inductive reasoning premises of an argument may support a conclusion, but does not ensure it and similarly, in deductive reasoning, an argument is dependent on the truth of its premises. That is, a false premise may lead to a false result and inconclusive premises also will yield an inconclusive conclusion. The limits of the argument behind "all swans are white" is exposed - it merely is based on the limits of experience (e.g. that every swan one has seen, heard, or read about is white). Hume's attack against induction and causation is based primarily on the limits of everyday experience and so too, the limitations of scientific knowledge.

Higher frequency

Rare and improbable events do occur much more than we dare to think. [1] Our thinking usually is limited in scope and we make assumptions based on what we see, know, and assume. Reality, however, is much more complicated and unpredictable than we think. Also, assumptions relevant to average situations are less relevant to irregular situations, especially when the "rules of the game" themselves do change.

The huge effect

Extreme events do happen and have a great effect. The effects of extreme events are even higher due to the fact that they are unexpected. Examples given by Taleb are the September 11, 2001 attacks, the rise of the Internet and particularly Google, and World War I. The results of these were hardly thought of before but were tremendous.

Limited human knowledge

Taleb's black swan is different from the earlier philosophical versions of the problem, specifically in epistemology, as it concerns a phenomenon with specific empirical and statistical properties which he calls, "the fourth quadrant".^[10] Taleb's problem is about epistemic limitations in some parts of the areas covered in decision making. These limitations are twofold: philosophical (mathematical) and empirical (human known epistemic biases). The philosophical problem is about the decrease in knowledge when it comes to rare events as these are not visible in past samples and therefore require a strong a priori, or what one can call an extrapolating theory; accordingly events depend more and more on theories when their probability is small. In the fourth quadrant, knowledge is both uncertain and consequences are large, requiring more robustness.

Before Taleb^{[citation needed]}, those who dealt with the notion of the improbable, such as Hume, Mill, and Popper focused on the problem of induction in logic, specifically, that of drawing general conclusions from specific observations. Taleb's Black Swan Event has a central and unique attribute, high impact. His claim is that almost all consequential events in history come from the unexpected—yet humans later convince themselves that these events are explainable in hindsight (bias).

Why are humans often caught off guard by or slow to recognize the rare and novel? Partly because built into the very nature of our experience is the propensity to extend existing knowledge and experience to future events and experiences. To exacerbate this natural propensity much of our cultural education both formal and otherwise is built upon historical knowledge forced on us by others. Of course both the natural physiological propensity and the cultural phenomenon are somewhat a necessary precondition to learning, since complete openness to every event would be inefficient. Bertrand Russell observed, "An open mind is an empty mind." So we cannot be completely open, but we must guard against being completely closed as well. It would be most efficacious if we could find a balance between the known and unknown and the limits of our knowledge and experience. The effect of unexpected events likely is integral to finding this balance. Thus, the rare and unexpected is far more significant to our formation of knowledge than people often imagine.

Taleb argues that the proposition "we know", in many cases, is an illusion, albeit a necessary one; the human mind tends to think it knows, but it does not always have a solid basis for this delusion of "I know". This notion that we do not know is very old, dated at least as far back as Socrates. The Socratic method of questioning and avowal of ignorance is the type of corrective action to the delusion that we know something completely and truly.

Similarly, to those who argue^[who?] that the advancement of science has rendered the world well-known, Taleb argues that while science added knowledge, we always run the risk of experiencing the improbable, rare, and novel. We can be shocked by this knowledge and experience or we can be open to it. As with the dictum of Socrates, "the only thing I know is that I do not know", is as true as ever, Taleb concludes. Taleb characterizes the trait, in part, as the Ludic fallacy.

Not all experts deserve the title

Taleb also questions the authority of experts. The truth behind science is limited to certain areas and methods. In many areas having an academic degree and presenting oneself as a scientist is irrelevant. Indeed, authority can stifle empirical experience which, so many times, has proven to have a sounder basis for accuracy.

The narrative fallacy

Another issue is the "narrative fallacy" (also called illusory correlation) which refers to our tendency to construct stories around facts, which in love for example may serve a purpose, but when someone begins to believe the stories and accommodate facts into the stories, they are likely to err.

Yevgenia's Character

Taleb has a chapter entitled Yevgenia's Black Swan. In it, he discusses a neuroscientist named Yevgenia Nikolayevna Krasnova, who has an interest in philosophy.^[11]

He admits a few pages later (page 26) that the so-called author is a work of fiction.^[12] Yevgenia rejects the distinction between fiction and nonfiction. She also hates the very idea of enforcing things into well defined "categories", holding that the world generally is complex and not easy to define.

Though female, the character is based, in part, autobiographically on the author (according to Taleb), who has many of the same traits.

See also

• Ludic fallacy
• Sextus Empiricus
• Raven paradox
• Apophasis
• Black swan theory
• Fractal
• Mandelbrot
• Cognitive bias
• Baryon asymmetry
• Black swan emblems and popular culture

Notes

1. ^ http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aHfkhe8.C._8
2. ^ Maneker, Marion (Thursday, March 26, 2009). "Mr. Taleb Goes to Washington. A black swan meets some ugly ducklings.". The Big Money. http://www.thebigmoney.com/articles/judgments/2009/03/26/mr-taleb-goes-washington. Retrieved 2009-09-14. 
3. ^ ^{a b} Baker-Said, Stephanie (March 27, 2008). "Taleb Outsells Greenspan as Black Swan Gives Worst Turbulence". Bloomberg. http://bloomberg.com/apps/news?pid=20601109&sid=aHfkhe8.C._8&refer=home. Retrieved 2008-04-21. 
4. ^ Taleb 2007 p.xix.
5. ^ Taleb 2007 PROLOGUE p.xxviii.
6. ^ Taleb 2007 PROLOGUE p.xxvii, Taleb call this human tendency the narrative fallacy: we seem to enjoy stories, and we seem to want to remember stories for their own sake.
7. ^ Taleb 2007 PROLOGUE p8.
8. ^ http://www.jstor.org/pss/294875
9. ^ Taleb, Nassim Nicholas. "Opacity: What We Do Not See". Fooledbyrandomness.com. http://fooledbyrandomness.com/notebook.htm. Retrieved 2010-10-01. 
10. ^ The Fourth Quadrant and The Limits of Statistics
11. ^ Taleb 2007 pp. 23-35.
12. ^ Taleb 2007 p. 26

References

• Taleb, Nassim Nicholas (2007), The Black Swan: The Impact of the Highly Improbable, Random House, ISBN 978-1-4000-6351-2 

External links

• Author's website
• Black Swan Glossary
• Slideshow lecture explaining the Ludic Fallacy with clarity By Peter Taylor of Oxford University.
• Nassim Taleb podcast interview on The Black Swan.
• YouTube Video Explanation
• 'All in a Flap: Beware of Unknown Unknowns', review of The Black Swan in the Oxonian Review