The central tenet of ‘The Black Swan’ is that periodically events will occur, which are so extreme as to irreversibly change the equilibrium around us, at the same time, they happen so infrequently that it is impossible to predict when or even if, they will happen. None the less, once they happen, it is obvious that they would have. As an example, the current global pandemic would be considered a black swan event.
The insights
The insights offered are both profound and relevant regardless of your circumstance, especially when he talks about how we measure and manage risk. As an example, he tells the story of the turkey before thanksgiving. Every day, the turkey is fed well. Day after day it is looked after. Then one day it is killed and eaten. In terms of the past, there was nothing that happened that could indicate to this turkey this would happen. Yet it did and was eminently predictable. Such is the paradox of the black swan and the fallibility of relying on past trends to predict the future.
Underpinning the book
With that, underpinning the book is the notion of statistical unpredictability and how we are fooled into thinking there is causality when in fact certain events are random, in part due to narrative fallacy. The human condition is such that we instinctively always want to explain why something happened, equally beware of this process as inevitably it leads to a disconnect between our perception and the reality.
This feeds into our natural propensity to underestimate the possibility of outliers. In effect given we are post rationalising events that we didn’t foresee ahead of time, it makes sense that we naturally struggle to forecast accurately. With that, he gives the example of a study performed by the psychologist Philip Tetlock.
“Tetlock studied the business of political and economic experts. He asked various specialists to judge the likelihood of a number of political, economic and military events occurring within a specific time frame (about five years ahead.) The outcomes represented a total of about twenty-seven thousand predictions, involving close to three hundred specialists. The study revealed that experts error rates were many times what they had estimated. Also interestingly, those with big reputations were worse predictors than those who had none.”
Taleb is a master storyteller, who interweaves between his personal experiences, through using case studies along with hypothetical examples and it is in the second half of the book, he delivers for me his most powerful insights. For example, he looks to prove statistically how in business, the winner takes all the spoils. That you only need to be 1% better than the competition in every way, and over time you will win a disproportionately large market share. Fascinating and backed up by the case studies he then showcases.
He concludes by arguing that the way forwards is sceptical empiricism. So, accept that it is OK not to know the answer and if in doubt, keep looking for the data that may give more insight. Black swan events are the dominant source of randomness, so whilst we cannot predict what the next one maybe, we should accept their inevitability. Only by doing this can we prepare for them properly and mitigate their impact, making them ‘grey swans.’ In this context, we can think about climate change and what that will mean if unaddressed as an example of a grey swan. Overall this book is thoroughly thought-provoking and well worth the read. One of my all-time favourites.
