Man on a Mission
Nassim Taleb is a man on mission. Like the Ancient Mariner, he seems compelled to tell his story. However, instead of being cursed by a dead albatross, he is plagued by black swans. They lurk unseen (and unseeable) in the corner of every room, waiting to peck us or preen us with no warning. They are the blindsiding beasts that Kurt Vonnegut mentioned in his commencement address to the MIT graduating class of 97...
Don't worry about the future. Or worry, but know that worrying is as effective as trying to solve an algebra equation by chewing bubble gum. The real troubles in your life are apt to be things that never crossed your worried mind, the kind that blindside you at 4 pm on some idle Tuesday.
Aside - Taleb is also like the child pointing out the emperor who has no clothes. It seems so obvious. But who could believe such a strange thing? It violates all our stories, all our preconceptions. The emperor hides behind a veil of accepted reality - which of course makes the child really mad.
Main Points
The Black Swan describes a rough sort of trader zen - an eightfold way (more or less) for getting by in a world beset by black swans. It might be one of those books.
These are points that appeal to me:
1. The world consist of two overlapping realities. One, that Taleb calls Mediocristan, is orderly and predictable. Events here fit under a neat bell curve. It is dominated by the mean or middle. The other reality, that Taleb calls Extremistan, is wild and unpredictable. Events here are controlled by a so-called Pareto distribution. It is dominated by infrequent events of high magnitude - black swans.
2. The world is much more of an Extremistan place than we like to imagine.
3. We pretend the world is orderly and predictable (a Mediocristan place) because orderly and predictable is what we do as humans.
4. Extremistan is unfair.
5. Extremistan is exciting.
6. The best way to get along in Extremistan is to:
- Be where positive black swans happen (the Hollywood hopefuls hanging out at Schwab's Drugstore had it right). Learn to recognize good luck; when it occurs, run with it.
- Avoid neighborhoods where negative black swans hang out.
- Constantly tinker to see if something good bubbles up. Don't worry about being seen as (or being) outlandish. Modesty is an expensive virtue.
- Mistrust experts who claim to predict the future.
- Find tricks to cultivate hope.
8. The most unexpected (and the grandest) black swan is you.
Aside- Doing research for this book report, I found that many other people have noted how reality does not fit neatly under a Gaussian bell curve. Taleb's mentor Benoit Mandelbrot was one of those. They all describe the difference between the head and the long tail of the Pareto curve. However, Taleb seems to be the most taken with the randomness of the distribution (except for Kurt Vonnegut, which is why I included his quote above). This is Taleb's "truth" - how we are at the mercy of random forces, even though (to Taleb's consternation) we pretend otherwise.
Taleb's Prologue
Black swans are unpredictable phenomena that seem predictable after the fact. Before Europeans went to Australia the only swans anyone (other than aborigines) had seen were white. The possibility of black swans had never crossed anybody’s mind. Black swans are a different category of the unknown - not just unknown, but unknowable.
One way to recognize that a black swan has happened is when experts struggle to explain why something that seems inevitable today was never anticipated. The idea (the hope) is that if you can explain the last black swan you can predict the next one. But it never seems to work.
Taleb says that the following are attributes of a black swan:
1. It is an outlier (e..g, statistically it is numerically removed from the rest of the data - if charted on a bell curve it would be way out toward the edge).
2. It has a significant impact for the person (or persons) to whom it happens. It is not a minor event. It will be remembered.
3. After the fact, it appears explainable and predictable. It seems obvious (as in smacking your head and proclaiming, "Why didn't I think of that?")
History is caused by black swans - it is a collection of them. Because of that we can't really explain history - although after-the-fact explanations offered by historians seem perfectly reasonable. WW1 and 9/11 were black swans. So was Google. So is the current the economic mess. None of these events will ever be exactly repeated. But something else will happen.
Experts who claim predictive powers aren't.
We can adjust to black swans by learning to take advantage of positive black swans (good luck) and lessen our exposure to negative black swans (bad luck). We need to hang out where positive black swans happen. Most significant discoveries are black swans.
Our hunter-gatherer origins predispose us to concentrate on what we know rather than what we don't know. We are genetically predisposed to ignore black swans. Our minds are constructed to look for obvious patterns (there is a tiger in the bush, run) rather than abstractions.
We live in an increasingly recursive world where this affects that which comes back around and affects this. Things can spiral out of control in a hurry. That is when a black swan happens. It is a world of Mandelbrotian chaos.
According to Taleb, there are two possible ways to study anything - to focus on the normal, the predictable, or to focus on the unusual, the unpredictable. He prefers to the latter type of study because that is where all the action (positive and negative) is.
"Platonicity" is the tendency to lump everything into categories and forms, or, as Taleb says, "to mistake the map for the territory" - or, to mistake "treeness" for "trees". .He says it is this tendency that makes up think we know more than we do.
The "Platonic fold" is where platonic ideas met the real world. Black swans fly out of this juncture (sort of like volcanoes erupt from the juncture of tectonic plates).
Talk is cheap. Action is important.
Warning - In summarizing Taleb (and trying to be clever) I probably got some little stuff wrong. Sorry. However, I think (hope) I got the big stuff right. Taleb would say that is the most important thing.
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