Review: The Black Swan

“Imagine a speck of dust next to planet a billion times the size of the earth. The speck of dust represents the odds in favor of your being born; the huge planet would be the odds against it. So stop sweating the small stuff. Don’t be like an ingrate who got a castle as a present and worried about the mildew in the bathroom. Stop looking for the gift horse in the mouth — remember that you are a Black Swan.” — Nassim Nicholas Taleb, The Black Swan

I started reading two books. But I ended up finishing just one. I just can’t put the damn book down. I’m talking about the book, The Black Swan. I felt instant connection with the author, Nassim Nicholas Taleb. I jive with his philosophy on improbability, no-nonsense “skeptical empiricism” and his audacity. He took me on an intellectual thrill ride into chaos, uncertainty, and serendipity. In this review I will share a portion of that journey.

Taleb started out with a very short autobiographical account (Chapter 1: Apprenticeship of An Empirical Skeptic) to give the reader a sense of where he’s coming from — his roots and cultural background, education, experience, profession, passion. Immediately, I get the sense that I’m not just reading another author. This author is a polymath — speaks and writes fluently in different languages, is educated with the classics (Greek, Latin, Hebrew, Aramaic), accomplished mathematician, a proud skeptical empiricist (in the tradition of Sextus Empiricus), had been a trader by profession, and has now dedicated his intellectual life in doing research on chance & improbability. He calls highly improbable events as, Black Swans — after the discovery of Black swans in Australia wherein prior to that people believed that all swans were “white.” A Black Swan event has the following three attributes: “rarity, extreme impact, and retrospective (though not prospective) predictability.”

The basic thesis of the book is this: Our human tendency to categorize (Platonicity) and explain the causes of everything with theories (narrative fallacy) backed up with partial evidence (confirmation bias; fallacy of silent evidence) while concocting models of reality (ludic fallacy) make us blind to Black Swans.

Sounds like a bunch of philosophical jargons, eh?

But where Taleb really shines is in his style of writing, and his intellectual audacity. As much as he dislikes narratives, he used narrative “for good” — using literary craft by mixing narrative, semi-autobiographical fiction infused with philosophical, scientific and technical knowledge backed up with empirical research.

Parts 1 and 2 of the book were dedicated to dispel our delusions that we understand reality while disregarding random events. To explain the two problems of randomness, Taleb resorted to metaphors of two worlds:

Mediocristan — a utopian province dominated by the mediocre (such as economists, politicians, historians, philosophers, and social scientists) where “particular events don’t contribute much individually–only collectively.” This world represents the soft problem of randomness.

Extremistan — a scalable world where extreme, unpredictable and highly improbable events occur. This is the world of the Black Swans. This world represents the hard problem of randomness.

According to Taleb, in reality, we all live in Extremistan. What pisses him off is that our economic models, scientific and mathematical tools (i.e. Gaussian Bell Curve–which Taleb calls,”that great intellectual fraud”), politicians, journalists, and even vanguards of knowledge, the philosophers, view and approach our world as if we’re living in Mediocristan! In short, we just can’t predict extreme random events.

But this book is not all rant. In Part 3, Taleb proposed a solution on how to adapt to the impact of Black Swans, even if we’re powerless to predict them. He championed the Mandelbrotian fractals over the Gaussian model because fractal representation is a more useful way of approximating randomness. With the Mandelbrotian factals, “We can turn these Black Swans into Gray Swans… reducing their surprise effect.”

“Fractals should be the default, the approximation, the framework. They do not solve the Black Swan problem and do not turn all Black Swans into predictable events, but they significantly mitigate the Black Swan problem by making such large events conceivable.” (p. 262)

That is the gist of his (technical) solution, specifically for economic, political, and scientific domains in the business of “prediction”, or forecasting.

When it comes to the practical and personal domain, I ride with his philosophy.

“Prediction, not narration, is the real test of our understanding the world.” (p. 133)

“…have the integrity to deliver your “because” very sparingly; try to limit it to situations where the “because” is derived from experiments, not backward-looking history.” (p. 120)

“…be human! Accept that being human involves some amount of epistemic arrogance in running your affairs. Do not be ashamed of that. Do not try to always withhold judgment — opinions are the stuff of life. Do not try to avoid predicting — yes, after this diatribe about prediction I am not urging you to stop being a fool. Just be a fool in the right places. What you should avoid is unnecessary dependence of large-scale harmful predictions — those and only those.” (p. 203)

“…be prepared! Narrow-minded prediction has an analgesic or therapeutic effect. Be aware of the numbing effect of magic numbers. Be prepared for all relevant eventualities.” (p. 203)

“Put yourself in situations where favorable consequences are much larger than unfavorable ones.” (p. 210)

In short, “maximize the serendipity around you.” I like that. Very Zen. As regular and long-time readers of this blog already know, I’m a sucker for serendipity 😉

However, my gripe with Taleb is not what he’s written in the book, but what was left unsaid. Although he cited the 1987 stock market crash (this single event vindicated him when he was still in the trading profession), 9/11, and World War II as examples of Black Swans, I feel that he intentionally left out the biggest and most controversial Black Swan of all: Global Warming. There was no mention of it in the book. I think Taleb avoided this controversial topic since his book is already controversial in the domain of business and economics. Adding the controversy of Global Warming will only take away the attention from his main point. And besides, Global Warming is a long-term predicted event that had already sunk in the collective consciousness of masses. It’s a Black Swan either way — the prediction coming to pass, or *not* coming to pass.

In any case, due to Taleb’s withholding of opinion on Global Warming, I can only speculate that, with his distrust of models and narratives, he  would fall on the Michael Crichton side of the Global Warming debate
. Crichton’s argument on nonlinearity, unpredictability, and unreliability of global climate models fit well with Taleb’s thesis (see Crichton’s interview with Charlie Rose). Simply put, on the topic of Global Warming, compared to Crichton, Taleb’s audaciousness (or in this case, foolishness) didn’t live up to my expectation.

But I still like the guy. After reading the book, I found an intellectual hero in Taleb. I groove with his skeptical empiricism, and his no-nonsense philosophizing. However, this somewhat puts me in a state of cognitive dissonance since I also have an affinity with Ken Wilber‘s integral philosophy (aka AQAL) which “explains” events and perspectives via a meta-map called, Four Quadrants. I wonder how Taleb would receive integral theory. Would he consider this as another instance of Platonicity? Or will he groove with it, like me? Likewise, what is the place of randomness and uncertainty within the integral model? Based on my understanding, even randomness is included in the integral model (i.e. philosophy of “oops”). However, Wilber’s propensity is to map out models and do extemporaneous narration based on those models. So I suspect that there would be an intellectual clash between Taleb and Wilber. This remains to be seen. But consider these quotes from Taleb and you’ll get an idea where he stands when it comes to grand sweeping theories.

“The way to avoid the ills of the narrative fallacy is to favor experimentation over storytelling, experience over history, and clinical knowledge over theories…. Being empirical does not mean running a laboratory in one’s basement: it is just a mind-set that favors a certain class of knowledge over others.” (p. 84)

“I care more about premises more than theories, and I want to minimize reliance on theories, stay light on my feet, and reduce my surprises. I want to be broadly right rather than precisely wrong. Elegance in the theories is often indicative of Platonicity and weakness–it invites you to seek elegance for elegance’s sake. A theory is like medicine (or government): often useless, sometimes necessary, always self-serving, and on occasion lethal. So it needs to be used with care, moderation, and close adult supervision.” (p. 285)

Bottom line: this book is a must-read. It’s a literary crash course on the uncertainty in economics, science, politics, and philosophy, all rolled into one. When I picked up the book I didn’t know it was the #1 Highest Selling Nonfiction book in 2007 on Amazon. So there goes another serendipity. This book is, literally, a Black Swan.

Finally, upon reading the book, this classic Rumsfeld quote ceased to be funny; it actually makes sense.

“Reports that say that something hasn’t happened are always interesting to me, because as we know, there are “known knowns”; there are things we know we know. We also know there are “known unknowns”; that is to say we know there are some things we do not know. But there are also “unknown unknowns” — the ones we don’t know we don’t know.”

Here’s to chaos, uncertainty, and serendipity!

UPDATE: 11/08/2008 – Just read this essay by Nassim Nicholas Taleb: “Real Life Is Not a Casino”. In it he expressed his stance on Global Warming. Here’s the relevant quote.

Let us apply the point to the current debate on carbon emissions and climate change. Correspondents keep asking me if the climate worriers are basing their claims on shoddy science and whether, owing to nonlinearities, their forecasts are marred with such a possible error that we should ignore them. Now, even if I agreed that it was shoddy science; even if I agreed with the statement that the climate folks were most probably wrong, I would still opt for the most ecologically conservative stance. Leave Planet Earth the way we found it. Consider the consequences of the very remote possibility that they may be right—or, worse, the even more remote possibility that they may be extremely right.


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