Book Review – The Black Swan
Image: The Black Swan by Len Lantz (CC BY-NC-ND)
Synopsis: Len's Star Rating: 10 out of 10. A superb book that looks at rare, unexpected risks and rewards in the economy and life from an accurate, countercultural perspective.
BY LEN LANTZ, MD / 7.19.2022; No. 89
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Star Rating – 10 out of 10
Rating guide: 1 = horrible, 5 = average and 10 = wow
Author
Nassim Nicholas Taleb
About the author
Nassim Taleb, PhD, is a mathematical statistician, former options trader and risk analyst, and author of several influential books on the effects of randomness, probability, and uncertainty in financial markets and life in general.
General description
As promised in its subtitle, The Black Swan outlines The Impact of the Highly Improbable. This book provides evidence-based logic that is countercultural compared to finance recommendations to date. Dr. Nassim Taleb says out loud what economists and financial “experts” deny, which is that their models can be devastatingly wrong and lead others to take enormous speculative risks financially while deluding themselves that all serious dangers in the economy can be predicted and mitigated. Topics covered in this book include:
The definition of a Black Swan and examples of positive and negative Black Swans
The dangers of confirmation bias and narrative fallacy
The falsehood that the prediction of future events is possible
The problem of confusing a model with a physical entity
The “barbell” strategy to reduce exposure to negative Black Swan events and increase exposure to positive Black Swan events
The pending catastrophe of basing economic risk modeling on Gaussian-bell curves
Unique and most important aspects
The Black Swan is one of the most eye-opening books that I’ve read. I found many fascinating statements, observations, and insights in this book, and I believe that this might be the most thoroughly underlined book in my library. Dr. Taleb provides irrefutable evidence of the presence of positive and negative Black Swans in life and how traditional risk/reward modeling simply cannot account for the severity of rare events.
I disagreed with Dr. Taleb’s inclusion of psychiatrists and clinical psychologists on his list of “experts who tend to be… not experts,” because I believe his definition of what constitutes an expert in these professional disciplines is reductionistic and not adequately supported. In full disclosure: I am a psychiatrist.
At times, this book was difficult to read given some of the technical and mathematical examples that Dr. Taleb offers to support his ideas. Also, some readers might be put off by his negative assessment of past leaders and thinkers – even Nobel laureates – whom Dr. Taleb paints as dangerous fools.
Despite its minor drawbacks, I believe this book is superb and provides the reader important information to more accurately understand risk not just in their finances but also in many other areas of their lives. Important features of this book include:
The concept of antilogic and the antilibrary
The constructs of Mediocristan and Extremistan that help the reader to understand the difference between a world with scalable variables (type 1 randomness) versus a world that is non-scalable (type 2 randomness)
The fictional characters of Fat Tony (thinks entirely outside the box) and Dr. John (thinks entirely inside the box) as a way of understanding how people think and make decisions and their vulnerability to negative Black Swans.
The problem of “tunneling” thinking
Benoit Mandelbrot’s contribution of fractals to understanding the occurrence of Black Swans
The description of the Fourth Quadrant as the place where Black Swans occur
Best quotes
“Black Swan logic makes what you don’t know far more relevant than what you do know. Consider that many Black Swans can be caused and exacerbated by their being unexpected.”
“The inability to predict outliers implies the inability to predict the course of history, given the share of these events in the dynamics of events.”
“The Platonic fold is the explosive boundary where the Platonic mindset enters in contact with messy reality, where the gap between what you know and what you think you know becomes dangerously wide. It is here that the Black Swan is produced.”
“Furthermore, the sources of Black Swans today have multiplied beyond measurability.”
“Hence the same condition that makes us simplify pushes us to think that the world is less random than it actually is. And the Black Swan is what we leave out of simplification.”
“Mathematics can show us its own limits rather clearly.”
“We are dealing with what is now called a dynamical system – and the world, we will see, is a little too much of a dynamical system.”
“The Black Swan asymmetry allows you to be confident about what is wrong, not about what you believe is right.”
“In a way, the limitations that prevent us from unfrying an egg also prevent us from reverse engineering history.”
“Randomness, in the end, is just unknowledge. The world is opaque and appearances fool us.”
“The same idea applies to debt – it makes you fragile, very fragile under perturbations, particularly when we switch from the assumption of Mediocristan and to that of Extremistan.”
“By the same argument we can lower 90 percent of Black Swan risks in economic life… just by eliminating speculative debt.”
Who would enjoy this book?
Readers who are interested in a countercultural perspective on risk, especially in financial systems, to more effectively manage their risk exposure would likely enjoy The Black Swan.
Who would not enjoy this book?
Readers who are looking for a simple book that does not challenge the very foundation of economic theory and the advice of financial planners are unlikely to enjoy The Black Swan.
Conclusion
The Black Swan is a superb book that looks at rare, unexpected risks and rewards in the economy and life from an accurate, countercultural perspective.
