book review: The Black Swan: The Impact of the Highly Improbable, by Taleb

I’ve been interested in this since I read a good review in the Economist, and I recently discovered the unabridged audiobook.  With a book on risk and probability, one never knows how exciting the ride will be, but Taleb very pleasantly surprised me.  He needs a harsher editor, but overall I learned a lot and enjoyed the vast majority.  My thoughts:

a valuable book for reframing your thinking on reasoning and rare events

Not for some time has a book affected my thinking as much as this one. Taleb’s self-described “personal essay” is way too long and sometimes a little too angry, but his exposition of the flaws in our thinking has provided a new and useful lens for much of my own thinking. One salient example is the narrative fallacy: “our predilection for compact stories over raw truths” (p63). We tend to assign causes and reasons for events even when we lack any evidence of connections: We want to tell stories. Many of these stories are harmless, but others can keep us from being open to truth when it appears.

A second example is the problem of silent evidence: If one uses worshippers who prayed and survived a subsequent shipwreck as evidence of the efficacy of prayer, an observer might ask, What of those who prayed and then drowned? “The drowned worshippers, being dead, would have a lot of trouble advertising their experiences from the bottom of the sea” (p100). It’s not that I’ve never noticed these fallacies before, but having a name for them makes them much easier to identify. These points and many more like them make this volume a worthy read.

The titular Black Swans are events with three characteristics: (1) they are outside of regular expectations because nothing in the past convincingly points to their possibility, (2) they carry an extreme impact, and (3) they are explainable and predictable after the fact although not before (p. xvii-xviii). Taleb argues that many modern phenomena, including the distribution of wealth (Bill Gates’s income), book and movie success (the Da Vinci Code), and mortality in modern warfare (to name a few) are subject to Black Swan events. Many natural and historical phenomena (such as the distribution of human heights or mortality in traditional warfare) are not as subject to Black Swans.

None of the standard statistical tools used for analysis in finance, economics, and social sciences are capable of accounting for Black Swans, making them – according to Taleb – worse than worthless, as they give a false sense of knowledge and security. (For example, he demonstrates how wildly erroneous financial projections unfailingly are and asks why these are useful.)

Taleb makes his point in thirty different ways, gives his personal history, insults economists repeatedly, and creates a number of hypothetical characters. He sometimes expounds too informally given the paradigm-shifting point he is trying to make, but overall the book has much to offer. He outlines a whole host of psychological biases and reasoning fallacies (beyond the two I mentioned above) that affect our thinking and predicting, often blinding us to the possibility of black swans.

Most of the book is non-technical [not that I’m the best judge of that, with an advanced economics degree], but a few chapters towards the end get into more technical detail: Taleb warns us in advance.

I listened to the unabridged audiobook narrated by David Chandler [12 CDs], published by Recorded Books. The narration is very good (with the exception that the narrator always pronounces foreign names with a little pause and a flare, like it’s a separate performance; but that’s a small and entertaining flaw).

[Note on content: The book uses strong language a handful of times.]