The Black Swan explores unpredictable events with massive consequences.
Nassim Nicholas Taleb is an ex-Wall Streeter, now a scholar and essayist focusing on probability and systems. His work has been well-received in some quarters, but fiercely debated in others. Taleb is known for his very particular style, including aggressive dismissal and attack of people and institutions he deems fraudulent.
The Black Swan continues Taleb’s life-long examination of probability – particularly probability at the margins. Why the margins? In this book, the author sorts events and fields into two categories:
Matters that belong to what Taleb calls “Mediocristan” are nonscalable. In Mediocristan, the average is a fairly good approximation of the whole. For example, consider a sample of human weights. Even if you add the heaviest human to the set (980lbs, incidentally), the average isn’t going to move too much.
Mediocristan fits the bell curve. Mediocristan changes slowly. Mediocristan is dominated by the mediocre, and has no massive outliers.
Matters in Extremistan are scalable. Averages do not measure the whole. Consider a sample of human wealth. You can have as many people as you want in the sample, but add Bill Gates to the mix, and the average will now have shifted so significantly that it doesn’t represent the group any more.
Matters in Extremistan do not fit the bell curve. They can change very rapidly. And in Extremistan, the outliers – single observations – are what make the difference.
The list of matters that fall into Extremistan is much longer than the one for Mediocristan – particularly for things we consider important, like wealth and the economy. Extremistan is where we find Black Swans.
The Black Swan
The title of the book comes from black swans, a concept discussed in antiquity and presumed not to exist. Because all observed swans had been white, people assumed that black swans did not exist. Until they found them, and our idea of what a swan is was fundamentally altered.
Taleb frequently refers to this anecdote, with the mantra: absence of evidence is not evidence of absence.
There are three characteristics of a Black Swan:
- Rarity: the event is an outlier. Nothing in the set of past data can predict its occurence.
- Extreme impact: the event fundamentally changes the measurement of the whole.
- Retrospective predictability: even though it could not be predicted ahead of time, we rationalize to ourselves about how we could have predicted it.
Taleb contends that “a small number of Black Swans explains almost everything in our world, from the success of ideas and religions, to the dynamics of historical events, to elements of our own personal lives”.
The Triplet Of Opacity
We are hard-wired to be blind to Black Swans. At our peril. Taleb blames this on the triplet of opacity, which is:
- The illusion of understanding: everyone thinks they know what’s going on in a world that is more complicated and random than they realize
- Retrospective distortion: the “20/20 hindsight” effect – we’re only really good at assessing matters after the fact
- Overvaluation of facts and reverence for authority: we are quick to elevate ‘facts’ and ‘experts’ that are often not fit for the label. Economists receive particular scrutiny from Taleb in this book.
With the basic concepts identified, Taleb goes on to explain each in turn, with plentiful real-world examples as evidence. This structure is typical of poorly written popsci books, who seem to do it just for filler. Every section of this book is necessary. What Taleb has here is a truly revolutionary idea, despite its simplicity. You will almost never read the types of analyses he offers here, so it is important to understand all the implications of the theory.
Ultimately, the Black Swan effect is one of tremendous (if not supreme) consequence in our past and for our future. Yet the “Black Swan blindness” Taleb identifies keeps us sleepwalking into disaster.
You’ll learn applications of the theory ranging from weightlifting and diet to childcare and political economy. Once you read this book, your perception will be permanently altered.
One thing I should note: you need to approach this book with an open mind to feel its full impact. The theory here is highly contrarian, but let Taleb make the argument and you’ll see the stunning breadth of its application. Black Swan blindness is everywhere, and we’re far more exposed than we probably should be.
The book ends with valuable advice on how to make our societies, and your own life, Black-Swan-robust. I have a personal preference for the actionable-advice style, but it’s a couple pages at best. The meat of this book is in the theory – and you’ll get your money’s worth of that.
This book should be in your library. You’ll want to read it more than once, so keep your copy.
The Black Swan is, simply, a major and indispensable piece of theory. It’s contrarian – Taleb is something totally different from what you’re used to, in both content and tone. What’s more, it’s counterintuitive – because we are cognitively biased against thinking this way. Buy a copy and get some brain tonic. You won’t regret it.
Social media creates large, complex networks that are ripe for Black Swans. If that interests you, come join me on Twitter, where I also post daily.