REVIEW: “The Black Swan”, Nassim Nicholas Taleb

BKBLKSWN.RVW   20110109

“The Black Swan”, Nassim Nicholas Taleb, 2007, 978-1-4000-6351-2,
U$26.95/C$34.95
%A   Nassim Nicholas Taleb
%C   One Toronto Street, Unit 300, Toronto, ON, Canada  M5C 2V6
%D   2007
%G   978-1-4000-6351-2 1-4000-6351-5
%I   Random House/Vintage/Pantheon/Knopf/Times/Crown
%O   U$26.95/C$34.95 800-733-3000 randomhouse.ca www.atrandom.com
%O  http://www.amazon.com/exec/obidos/ASIN/1400063515/robsladesinterne
http://www.amazon.co.uk/exec/obidos/ASIN/1400063515/robsladesinte-21
%O   http://www.amazon.ca/exec/obidos/ASIN/1400063515/robsladesin03-20
%O   Audience n- Tech 1 Writing 2 (see revfaq.htm for explanation)
%P   366 p.
%T   “The Black Swan: The Impact of the Highly Improbable”

I was irritated into reviewing this book.  I knew that the title referred to events which are rare, and therefore seen as unlikely or impossible, but which, once observed, are obviously true.  I had heard this book (and idea) discussed in terms of risk analysis, but the mere fact didn’t strike me as terribly useful.  To a certain extent we deal with such issues all the time in business continuity planning.  So, when, during yet another conversation on risk analysis, one participant insisted that we should all read this text, I responded that the earth might fall into the sun, soon, and therefore I couldn’t see risking what little time I had left reading Taleb’s work.

The participant insisted that we weren’t going to fall into the sun for a long while, and therefore I should read the book.  Having now read it, I can say that this person didn’t understand one of the author’s main points.

In the prologue, Taleb describes a Black Swan event as one which is rare, has an enormous impact on the world, and is explainable after the fact.  During the course of the work he presents a number of examples.  A great deal of the text, though, discusses, disparages, and even rants against efforts to predict future events or outcomes, particularly those which rely on models.  The author notes that many of these models fail to take certain factors into account.  This is quite true: a model, by its very nature, must be limited.  A map of Canada, the full size of Canada, would be accurate, but not very portable, and thus not useful.  In the same way, any model is a heuristic, giving a quick indication of operation on the basis of a very limited set of factors.  Taleb’s thesis about rare events seems to take second place to his assertion that you can go badly awry by relying on a model which fails to take all factors into account.

My “earth into the sun” example, therefore, fits well into the theme of the book.  As far as we understand, we have probably billions of years before we spiral into the sun.  On the other hand, some rare event may make this happen much sooner, and we’ll all be impacted (if you’ll pardon the expression).  And, if it does happen, you can bet that, in the few weeks or hours between the event and our incineration, there will be plenty of people who will be building models to explain why it did happen.

This statement is undoubtedly true.  But is it helpful?  Much of the author’s work is addressed at the issue of investment, and particularly “playing” the stock market.  He notes that an investor, by betting on black swan events, can make a large return (since black swan events have a large impact).  This declaration is also true, but you can’t bet on all possible events, so which ones do you choose?  For example, computer equipment retailers who “bet” on tablet computers last year would, this year, be in a very strong position.  Those who did the same thing twenty-three years ago would have been stuck supporting the Newton.

Taleb keeps repeating (and repeating, and repeating, and repeating: his few points are duplicated many times over through nineteen chapters) that just about everyone tries to avoid risk on the basis of what they have seen in the past.  In fact, not only many studies but also common observation show that this isn’t the case.  The general public loves to gamble.  Studies of “successful” people (business leaders, etc.) indicate that they are more prone to gambling and risk-taking than the general public, and, in fact, foolishly so.  (“Leaders” have a strong tendency to gamble even when it is quite clear that taking the small but sure return is the better deal.)

Is this, in fact, evidence that Taleb is correct, and that we all should be risk-takers, betting on black swans?  No.  As he, himself, points out in a different context, some risk-takers win, and become “successful,” while a lot of risk-takers lose, but disappear into the general population.  (Or just disappear.)

The central point about making predictions on the basis of insufficient knowledge is emphasized most repetitively in regard to investments and finance.  The author does suggest a method for ventures: keep 90% of your funds in the most conservative undertakings, and invest the 10% in wildly speculative “positive” black swans.  Of course, this doesn’t guarantee that any of your wild investments do pay off, but at least you will have your 90%.  Unless a “negative” black swan comes along and wipes them out.

The book is, actually, fairly fun to read, but annoying to review.  Taleb has good facility with language, and writes in an amusing, if scattered, manner.  As a means of passing the time, the text is fluid, entertaining, and even has some points worth thinking about.  However, in terms of this review series, I must consider whether the tome is useful or not, and I’m not certain that it is.  Taleb presents some salient warnings, but makes any number of statements ( several of them outrageous) without going to the trouble of backing them up.  (This fact is rather ironic in view of his repeated denigration of academics and technical authors who cannot write clearly and “properly.”  He even admits, almost up front, that a friend “caught [him] red-handed” by challenging him to “justify the use of the precise metaphor of a Black Swan,” and he had to confess “this book is a story.”)

To take a page from the way Taleb writes, I could point out that his “Extremistan” bears a strong resemblance to the age of the dinosaurs.  They developed the largest land-dwelling creatures ever to walk on earth, lasted much longer than we humans have, and, some models show, were able, simply because of their immense numbers, to effect climate in ways that we have only recently been able to do by pumping their remains out of the earth and burning them.  They were also subject to a black swan event in the shape of an asteroid, which left, as their descendants, only Taleb’s much maligned turkeys.

There are certainly holes in this argument, but it is as entertaining, and as valid, as much of what Taleb writes in the book.

In the end, I have to agree with Taleb’s mother: there is some use in this book, but an enormous disparity between what the author thinks it is worth, and what it is actually worth.

(No ballet dancers were mentally harmed in the reviewing of this book.)

copyright, Robert M. Slade   2011     BKBLKSWN.RVW   20110109

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