THE BLACK SWAN
THE BLACK SWAN
ABOUT THE AUTHOR
Nassim Nicholas Taleb is a Lebanese American essayist ess ayist whose work focuses on problems of randomness and probability. The Black Swan is one of his best sellers. The Book was described in a review by Sunday Times as one of the twelve most influential books since World War II He is a bestselling author and has been a professor at several universities, currently at Polytechnic Institute of New York University and Oxford University. He has also been a practitioner of mathematical finance a hedge fund manager a Wall Street trader and is currently a scientific adviser at Universal Investments and the International Monetary Fund. He criticized the risk management methods used by the finance industry and warned about financial crises, subsequently making a fortune out of thelate-2000s financial crisis. He advo advoca cate tess what what he calls calls a "bla "black ck swan swan robu robust" st" soci society ety,, meani meaning ng a soci society ety that that can withstand difficult-to-predict events. He proposes "anti-fragility" in systems, that is, an abil ability ity to bene benefi fitt and and grow grow from from rando random m even events, ts, error errors, s, and and vola volati tilit lity y, as well well as "sto "stoch chas asti ticc tink tinker erin ing" g" as a meth method od of scie scient ntif ific ic disc discov over ery y, by whic which h he mean meanss experimentation and fact-collecting instead of top-down directed research. INTRODUCTION AND SUMMARY
Black swan events were introduced in his 2004 book Fooled by Randomness, which concerned financial events. His 2007 book (revised and completed in 2010) The Black Swan extended the metaphor to events outside of financial markets. Taleb regards almost all major scientific discoveries, discoveries, historical historical events, and artistic accomplishm accomplishments ents as "black swans" swans"—un —undir direct ected ed and unpred unpredicte icted. d. He gives gives the rise of the Intern Internet, et, the person personal al computer, World War I, and the September 11 attacks as examples of black swan events. The book focuses on the extreme impact of certain kinds of rare and unpredictable events (out (outli liers ers)) and and huma humans ns'' tend tenden ency cy to find find simpl simplist istic ic expl explan anat atio ions ns for for these these even events ts retrospectively. This theory has since become known as the black swan theory. The book also covers subjects relating to knowledge, aesthetics, and ways of life, and uses elements of fiction in making its points.
The main idea in Taleb's book is not to attempt to predict Black Swan Events, but to build robustness to negative ones that occur and being able to exploit positive ones. Taleb conten contends ds that that banks banks and trading trading firms firms are very vulnerab vulnerable le to hazard hazardous ous Black Black Swan Swan Events Events and are exposed exposed to losses losses beyond beyond those those that that are predic predicted ted by their their defecti defective ve financial models. The book's position is that a Black Swan Event depends on the observer—using a simple example, what may be a Black Swan surprise for a turkey is not a Black Swan surprise for its butcher—hence the objective should be to "avoid being the turkey" by identifying areas of vulnerability in order to "turn the Black Swans white". The phrase "black swan" derives from a Latin expression; its oldest known occurrence is the poet poet Juvena Juvenal's l's charact characteriz erizatio ation n of somethi something ng being being "rara "rara avis avis in terris terris nigroq nigroque ue simillima cygno" ("a rare bird in the lands, very much like a black swan"). In English. When the phrase was coined, the black swan was presumed not to exist. The importance of the simile lies in its analogy to the fragility of any system of thought. A set of conclusions conclusions is potentially potentially undone undone once any of its fundamental fundamental postulates postulates is disproved. disproved. In this case, the observation of a single black swan would be the undoing of the phrase's underlying logic, as well as any reasoning that followed from that underlying logic. Juvenal's phrase was a common expression in 16th century London as a statement of impossibility. The London expression derives from the World presumption that all swans must must be white white becaus becausee all historical historical records records of swans swans report reported ed that that they they had white feathers. In that context, a black swan was impossible or at least nonexistent. After Dutch explorer Willem de Vlamingh discovered black swans in Western Australia in 1697,the term metamorphosed to connote that a perceived impossibility might later be disproven. Taleb notes that in the 19th century John Stuart Mill used the black swan logical fallacy as a new term to identify falsification. Specifically, Taleb asserts in the New York Times: What we call here a Black Swan (and capitalize it) is an event with the following three attributes. First, it is an outlier, as it lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility.
Second, it carries an extreme impact. Third, in spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable. “I stop and summarize the triplet: rarity, extreme impact, and retrospective (though not prospective) predictability. A small number of Black Swans explains almost everything in our world, from the success of ideas and religions, to the dynamics of historical events, to elements of our own personal lives.” Nassim Nicholas Taleb refers to the book variously as an essay or a narrative with one single idea: "our blindness with respect to randomness, particularly large deviations. It is Taleb's questioning of why this occurs and his explanations of it that drive the book forward. The book's layout follows "a simple logic" moving from literary subjects in the beginning to scientific and mathematical subjects in the later portions. Part One and the beginning of Part Two delve into Psychology. Taleb addresses science and business in the latter half of Part Two and Part Three. Part Four contains advice on how to approach the world in the face of uncertainty and still enjoy life. Taleb acknowledges a contradiction in the book. He uses an exact metaphor, Black Swan Idea to argue against the "unknown, the abstract, and imprecise uncertain—white ravens, pink elephants, or evaporating denizens of a remote planet orbiting Tau Ceti." ANALYSIS
1.
It fin finds and and expl explai ains ns the the chal challe len nges ges in oth other mana manage geme ment ntss metho ethods ds such such as six six
sigma,scientific management etc 2.
It reduc reduces es the the com comple plexi xity ty and and deci decisi sion on maki making ng of plan planne ned d pro projec jects ts..
3.
It is a tool for risk management.
4.
It takes takes away away the the issue issue of the the limit limitati ation onss of stati statisti stics cs,, whic which h slig slight htly ly more more
theoretical.
