Some Heavy Stuff
April 21, 2020
The Black Swan (2010) by Nassim Nicholas Taleb provides insights into perceived randomness and the limitations we face in making predictions. This is not merely an academic or intellectual book as Taleb has used these insights to make a tremendous amount of money as a trader.
Taleb defines a Black Swan as an event with three attributes:
1. It is an outlier as it lies outside the realm of regular expectations and nothing in the past can convincingly point to its possibility,
2. It has an extreme impact, and
3. We can concoct explanations for its occurrence after the fact.
Taleb argues tour over-reliance on methods that appeal to our intuition at the expense of accuracy, our basic inability to understand and define randomness, and even our biology itself all contribute to poor decision making, and sometimes to “Black Swans” – events thought to be impossible that redefine our understanding of the world.
I am working my way through Part 1 (of 4) of the book and my brain is getting a workout. Talib is quite the intellectual and he sometimes likes to prove it. He draws partially on the work Kahneman and Tversky in discussing how we can be misled by our intuition and our biases.
As a side note, while some have described the Covid-19 pandemic as a Black Swan event, Talib says it is not because it was foreseeable.
More on this book later!