Book Reviews

Book Reviews

Book Review: The Black Swan: The Impact of the HIGHLY IMPROBABLE, by Nassim Nicholas Taleb

By Stephen Northcutt

A black swan is a surprising or virtually unpredictable event that can have a massive impact. Nassim Taleb's observation is that, after the fact, we concoct a narrative to explain it. Dangerous behavior at best. Google and 9/11 are black swans according to Taleb. After explaining that the narrative is dangerous, the author proceeds to deliver 308 pages of it! That is the way this book goes; it is hard reading, words you are not familiar with, jabs at the French followed by text in French, games within games. Yet, there are tons of pearls; as Taleb says, the test of an author is whether you reread his work, and I will have to reread this to comprehend more.

A big chunk of the book is describing two subsets of our world: Mediocristan and Extremistan. Mediocristan is the world of the regular Joe, at least most of the time. Earnings are related to the amount of work you do, things are predicable, or at least mostly so. You can explain most events with a Gaussian distribution, a bell curve. Extremistan is the world of rock stars, book authors, G- where unfairness reigns, Joanne K. Rowling made several orders of magnitude more money on royalties than I did, the unexpected happens, Black Monday and Tuesday, the stock crash October 28-29 1987 caused the US Stock market to decline over 22%. If you can describe Extremistan then you do it with power laws and fractal geometry, not bell curves.

He challenges our notions about success; some companies and some CEOs that we think of as role models probably just got lucky. This was very helpful for me since I just finished reading Seduced by Success, which has a similar message. Taleb draws on his experience as a trader, a quant, in the financial markets and tells the reader in essence, these guys are just guessing. His financial advice is to put about 85% of your investment into something very safe and stodgy like T-Bills and then use the remaining 15% on high risk, high payoff instruments and adjust the percentages based on your risk appetite.

There is a fictional component to this non-fiction book, at one point he is telling the story of a lady author and her paramours and it seemed impossible; it was, she was fiction. Another word picture was a true man of the world (Fat Tony) who had his own social engineering approach to the famous coin flipping problem. The Fat Tony's of the world do not allow even distribution to happen.

People are either going to like this book or hate it. I have a thick skin, I choose to like it. He made me work pretty hard to get through the book, but the mind is a muscle, and I, for one, thank Taleb. I predict statisticians, academics and Frenchmen are going to despise this work.