Philosophy, Business/Finance, Math/Probability Types: The Black Swan by Nassim Taleb

I did a search across the SDMB and did not come across a thread dedicated to this book.

There should be. The Black Swanby Nassim Nicholas Taleb.

It was written a few years ago and got a lot of buzz, but mostly in Big Finance/Global Economic circles. The impression I got was that is like **Too Big to Fail **or **The Big Short **or some other ‘why the Finance big wigs get us into trouble’ books.

It is NOT like them - yes, it touches on why Financial Markets fail, but it is NOT about Finance.

Fundamentally, it is a **philosophy **book; one that *uses *behaviors in Financial markets and the technical math underlying them as the laboratory setting to illustrate his ideas. So you need to have a solid grounding in philosophy, finance, probability-based maths and a few other things to truly get it. I didn’t get much of the finance, but have been reading some of those “history of philosophy” books you can get at the airport :wink: and took a lot of math as a Computer Science major so I could grasp the basic ideas.

From a Philosophy standpoint, his ideas are grounded in two key concepts:
[ul]
[li]“Skeptical empiricism”- a fancy way of saying “assume you don’t know; rely only on the facts in front of you” or, as they say in Missouri: Show me.[/li][li]“Epistemic arrogance” – an even fancier way of saying “don’t think you can know everything” coupled with “what you think you know – but really don’t – can really hurt you.” [/ul][/li] [ul][li] Within this context is the “Black Swan event” – one that seems unthinkable when it happens, but is “foreseeable in hindsight” and have dramatic effect, like a big earthquake or the dominance of Facebook. [/li] [li] Epistemology is the part of classical philosophy that asks the question “what can Man know?” and “are their limits?” Since the author is starting from a place of skepticism, you can guess his position: we are arrogant, and the financial crisis is a result of that – we thought we could understand market behaviors, i.e., markets behave “rationally.” But they don’t – and Taleb spends a ton of time telling stories about being some sort of international economic badass, tweaking the noses of Nobel winners, Robert Rubin and Ben Bernanke and just about any other reputable name in the money game you can think of. [/li] [li] Really, though, the “truth” at the heart of the book is as old as a Greek tragedy: don’t think you can know, let alone control, the forces underlying our lives. Trying to do so is a recipe for disaster every time. [/li][/ul]
What is interesting is how he grounds this argument using the various math, economic, history of philosophy, and other disciplines –

[ul] [li]He argues that Man has survived because we are adaptable – and part of that adaptability is to be able to “look ahead” – i.e., consider possible outcomes and choose the best path.[/li][li]This tendency to Forecast leads us to come up with “rules of thumb” – basic frameworks we use to simplify the world and make choices.[/li][li]The tendency to Forecast, however, only fits some situations – and here, Taleb spends a ton of time discussing where forecasting does – and more importantly, does NOT – apply. Again, no surprise, Financial markets are an example of where forecasting does not work. [/li][li]When you are in an area that you can NOT expect to forecast accurately:[/ul][/li][ul][li]Establish a minimum nest egg that you never touch[/li][li]Diversify your nest egg and your general business practices – i.e., someone with a bank account AND money in their mattress is better off[/li][li]Grow via a “rapid deployment” approach: many small growth experiments from which you can drop the failures with minimal risk while tweaking and building off of the ones that survive.[/li][li]Keep alert for “positive Black Swan” opportunities that you can exploit[/li][/ul]
Anyone else read it? As someone who is in charge of both Strategic Planning (establishing a Top-Down approach to making trade-off choices in our business) and Risk Management (assume top-down plans are arrogant in the face of reality) I found this book fascinating and well-written. As a student of philosophy (self-taught), I appreciated how chose to ground this book as a philosophy book, NOT as a business or Finance book.

Entirely read-worthy.

bump

Had to give it one more shot.

Anyone read this? It was a big bestseller, I swear! :wink:

Yeah, I read it. Interesting enough, from what I recall, but the impression I came away with was that the author wasn’t quite as brilliant as he obviously thought he was. I might be being unfair though . . .

Do you come to that conclusion from a basis of philosophy, finance, math/probability or some combo of those? If you think his ideas are really more re-statements of known principles, I would be interested in hearing who you point to ahead of him; I am enjoying reading in this area and always looking for other books that trying to present present-day issues within the context of philosophic frameworks…

Hmmm . . . It’s been a long time since I read it, as I said, so I was mainly answering as nobody else seemed to want to (it was a bestseller, you’re right). I’ll give it a go, though:

I would say that the idea that some events can only be predicted in retrospect, “foreseeable in hindsight”, is a fairly obvious one from a probability point of view, although it is one that most people don’t get (for instance the fact that someone always wins the lottery doesn’t alter the fact that you never will). The best example I can think of (which might even be used by Taleb in the book) is that it is very unlikely for someone to win ten coin tosses in a row. But if you set up a coin toss tournament with 512 people, someone will. But, of course, you can’t predict which of the 512. Recognising that winning in the financial markets is rather like this (therefore keep your stakes low and diversified and hope to ride some luck) is interesting but not startling, in my book.

Mostly though I though he just came across as a bit arrogant and I wouldn’t want to have dinner with him . . .

Oh, I knew you were sympathy posting - and I appreciated it! :wink:

But I hear what you are saying. In my attempt at a summary above, I tie some of his basic points back to Greek tragedy, so yeah, not new stuff. But what I found interesting was his ability to link those basic premises to macro-economic concepts in the world today.

As for his arrogant personality - oh yeah, he comes across like a total character. But since I find many of his positions interesting and/or I agree with - he cites Montaigne as his big hero, for instance - I think it would be fun to sit with him at dinner and wind him up and watch him go…

I enjoyed it, it was a really thought provoking read (even if I did have to read some sections more than once to try and digest the message). It highlighted real weaknesses in human being’s ability to deal with probability. My only issue, and this is not his fault, is I’m struggling to see how I’m likely to behave differently because of it.

It’s on my bedside table, having been demoted from bathroom book (I almost never read in bed) because Taleb is an offputting writer. I found his ideas intriguing, and I wish he’d write about them, instead of spending the first few chapters telling me how awesome he is, and how rich he is, and how much smarter than everyone (including, probably, me the reader) he is. I realized I was starting to argue with the book, and that’s the point when I decided that I have better things to do than to keep reading a book that was pissing me off.

Maybe he’s better in person, but in print, he comes across as an arrogant douchebag.

I guess I would say that, over and above the fact that he is clearly a character, he is also speaking the language of the “Big Swinging Dick” - i.e., big banking, Econ policy and Government leaders who only listen if you know how to throw your weight around correctly. In fact, given the sophistication behind his arguments, I would argue that he got folks attention by being provocative so they felt a need to invest the time to understand what he was saying…

Just part of that world - kinda why I didn’t pursue a role in it…

That’s my impression too. If you look at his recent pieces, he’s speaking with a pretty different voice. There’s a lot of the same ideas in his earlier book “Fooled by Randomness” without the bits that make you want to smack him, and that’s definitely worth checking out if you find “The Black Swan” to be aggravating.

That said, I think he’s dead on with his central message, and people who are consumers of statistical models need to hear what he’s saying. His notion of the ludic fallacy is really wonderful, and it’s going to eventually make its way into introductory probability courses (particularly mine). While I was reading the book, I definitely spent a lot of time rolling my eyes at his bravado, but it’s an important enough message that it’s worth the effort to get past that.

Thank **uf **- that’s exactly what I found interesting (and I didn’t know you taught probability, but I feel like I should’ve…) - as the Risk officer of my company, having a sense of what areas of risk CAN conform to Bell Curve probabilities and which areas of risk can NOT - e.g., financial forecasting, per all of his examples - is a great insight to have…

Thanks for the perspective, all. I do intend to read it at some point - that’s why it’s still on the bedside table instead of being demoted to the basement library - but probably not right now.

Minor follow-up: so I was listening to NPR on the way in to work this morning. Nobel-prize winning economist Joseph Stiglitz was being interviewed.

Now, as discussed up-thread, Taleb gets all “badass Big Swinging Dick” in his tone in the book, and he saves his arrogance most for Nobel-prize-winning Economists. He calls the concept of the award a sham, and the fact that most of the winning Econs were supporting various forms of the “rational market” point of view - which Taleb mocked and which got blown apart during the Meltdown - a crime.

So, listening, I have to say that it did sound like Stiglitz was parroting a lot of the lines that Taleb accuses Econs of saying - much more about deficit spending to increase jobs at this point in order to position the economy to make enough money to overcome the debt we are incurring…sometime down the road.

IANAEconomist so I may have mis-interpreted, but it was interested to listen to after reading the book…

Tried to find a link to the interview on NPR.org but it is not posted yet…

I read Fooled by Randomness, and I totally wanted to smack him.