Taleb, Nassim Nicholas: The Black Swan

The proposer introduced the book as about uncertainty. A “Black Swan” event equals uncertainty.

Nassim Taleb is Professor in the Sciences of Uncertainty at University of Massachussetts. He is of Lebanese origin. This was important in the development of his thinking. Lebanon seemed to be a stable paradise until civil war erupted in 1970’s. Taleb was a banker until recently and, as a result of his “Black Swan” book written in 2006 and the current financial crisis, has become a much sought after pundit. On the very day of the Book Group’s discussion, he had been interviewed by Evan Davies on the “Today” programme and had been a speaker at the Davos economic summit. Journalists are always asking NNT to predict Black Swans, proving they do not properly understand the idea.

According to Taleb, Black Swans have three attributes. They are outliers , ie lie outside regular expectations; they have an extreme impact; and we retrospectively concoct explanations for what has happened to make it explainable and predictable. The highly expected not happening is also a Black Swan. The problem is that everyone including the “experts” acts as if Black Swans do not exist. The inability to predict outliers implies the inability to predict the course of history. We need to adjust to the existence of Black Swans. What is surprising is not the magnitude of forecast errors but our absence of awareness of it. Experts are not experts.

Taleb argues that conventional wisdom is inapplicable in our modern, complex, “recursive” environment. By recursive Taleb means that the modern world has an increasing number of feedback loops, causing events to be the cause of more events thus generating snowballs and epidemics. The banking system is a good example, as Taleb said before the current crisis. Taleb has written an essay claiming that the world is dominated by the extreme, unknown and improbable event and we should be studying this more instead of concentrating on the known and repeated. Taleb claims the future will be increasingly less predictable.

Taleb points out that there is nothing new about the Black Swan problem. The central difficulty of generalising from available information, or learning from the past, is an old problem discussed by many philosophers. It is sometimes known as the “Hume” problem but is older than him.

Taleb argues that we generalise too much from the seen to the unseen. We get closer to the truth by negative instances not by verification. Asymmetrical scepticism is the right approach. Popper was the key promoter through his falsification theory. You know what is wrong with a lot more confidence than you know what is right. The natural tendency is to look for conformation rather than falsification.

We also like to summarise, simplify and explain. Not to explain goes against our nature. Information is costly to obtain, store and retrieve. The same condition that makes us simplify pushes us to think that the world is less random than it is. A novel, a story spares us from the complexity of the world. Stories impart order to the disorder of human perception. So Black Swans get left out. We more easily remember those facts that fit the narrative and neglect those that do not appear to play a causal role. History appears in hindsight far more explainable than it actually was – or is. The way to avoid the pitfalls of the narrative is to favour experiment over storytelling, experience over history and clinical knowledge over theories.

What we see is not all the evidence. History hides Black Swans. History is any succession of events seen with the effects of posterity. Silent evidence gives an illusion of stability. The bias lowers our perception of risks incurred in the past.

When people are asked to name three recently implemented technologies that most impact on the world today, they usually propose the computer, the Internet and the laser. All were unplanned, unpredicted and unappreciated initially. They were Black Swans.

We think we know more than we do. Our arrogance results in trouble. Too much information can impede knowledge. The military are more aware of Black Swans than other professions. Security and economic forecasters have a poor record.

Many great discoveries are accidental. Historians cannot predict the future.

The proposer indicated that he had first come to the book as a keen student of history, and the philosophy of history, but it had become even more relevant following the banking crisis. He had found the book fascinating, thought provoking and enjoyable, but acknowledged that Taleb could also be quirky, arrogant and maddening.

A wide ranging and thought provoking discussion ensued. There was general agreement that the book was interesting, important and thoroughly entertaining. The timing of its publication had resulted in the book itself becoming a Black Swan. There was disagreement, however, as to whether Taleb’s analysis was correct. Those with a history background thought the Black Swan idea was a valid one in that context but others argued that Taleb had misused statistics which undermined his whole analysis.

This led on to a discussion about whether certain events were Black Swans, focussing on the current financial crisis, 9/11 and World War I. No agreement was reached. There was also an interesting debate as to how the computer and internet had affected both individual and societal behaviour and whether Taleb’s view was correct that such changes had made the world a more uncertain and unpredictable place than before.

There was more general agreement that the book was irritating, badly argued, over long and needed a good editor. No doubt Taleb’s ego and arrogance made this impossible. There was less agreement as to the effects of this on the substantive argument of the book. Taleb had acknowledged that the book was a populist,polemical essay and it was doubtful whether a more academic book on such a difficult subject would have attracted anything like the same level of attention.

In conclusion, everyone had found the book enjoyable and stimulating despite its irritations.