latory book, Taleb explains everything we know about what we don't know. He offers surprisingly simple tricks for dealing with black swans and ben efiting from . The Black Swan: The Impact of the Highly Improbable Series concept and development – Sarah Butler Other books in the series Modern German Gramma. author categorizes as “Black Swans” (sometimes, more been often referred to as “Hume's Black Swan” 1 in books represent half of the total unit sales.
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The book's central thesis, that the statistical models beloved by mainstream Taleb's central metaphor of the eponymous black swan arises from the fact that. As Nassim Taleb describes it, a Black Swan is an event that displays three key apoplexy when it comes to mainstream economists—makes the book an. A black swan is referred to as an event that delivers positive or negative consequences. This book is focused on some rare unpredictable events that often have.
The author says that many models of portfolio and risk management exclude the possibility of a black swan. This was the case for Long Term Capital Management , where the Nobel-prize winning founders, so sure of their mathematical models, loaded up on risk and created a time bomb.
Bell curves measure the normal, the average, and they ignore the large deviations and the unexpected. Training for Failure Interestingly enough, says Taleb, also organized sports that forbid certain moves make trained athletes weaker to unexpected events. Fighters for example train with rules, which makes them more vulnerable in a street fight because they are trained not to expect illegal moves.
Those who win the gold medals might be precisely the most vulnerable in real life. You need to discover them. He says we should not try to predict them but adjust to them. What did he do exactly? Ring the trading bell in television. So we reward the central banker who is presiding on a recovery after a recession, but never the central bank who helps prevent a recession.
Sometimes we actually punish those who help prevent a catastrophe because their measure can create bottlenecks or cost money. Great People Were Lucky One of the most, hardest-hitting theories of Taleb is that of randomness of rewards. We live in a society that glorify the individual here in the west, and we like to think that windfalls are always deserved.
But Taleb makes the very credible point that, more often than we realize or care to admit, success and who we choose to remember or forget is rather random — Einstein has displaced so many others equally deserving, says the author-. Just to be clear, he does not say that successful people are not talented, but simply that they are less uniquely talented than we think. And I find that to be a liberating and empowering message.
One of the most famous and criticized notions from The Black Swan is that, simply by randomness in a large population, you are bound to have successful. But that success might have nothing to do with talent. Anecdotes and Quotes Are Not Evidence Nicholas Nassim Taleb talks about the tendency of narratives to be built around influencing and convincing instead of searching for the truth. Anyone looking for confirmation will find enough to deceive himself -and no doubt his peers-.
The overvaluation of factual information: especially at the hands of authoritative and learned people, who think they have the tools to make connections and predictions. Narrative Fallacies Taleb says we all engage in simplification of the world that often turn out to be distortions more than simplifications. And on top of distortions, in those simplification we all leave out the black swans.
Mediocre Stand VS Extreme Stand The author has a super interesting discussion professions and fields that are scalable and produce few winners and masses of losers extreme stand and professions and fields which are not scalable and are more equalitarian mediocre stand.
Authors and book sales in one example of extreme stand, where the biggest authors sell thousand of times more than the thousands average selling authors combined. Average human height and average weight are examples of mediocre stand, and they can be easily measured with a bell curve.
You can lose or make a fortune in a single day or in a single unexpected event. Scalable fields are very risky because they present huge disparities between efforts and rewards. They are dominated by a very small amount of giants and an army of dwarfs struggling to make ends meet. Extreme Stand and Knowledge Dealing with mediocre stand means that you can more easily measure the whole population by looking at a few hundred cases.
But in extreme stand, measuring a few hundred cases will likely tell you very little. If you take earnings for example, the chances you will pick a Bill Gates in your sample are very slim, but the people like Bill Gates exert a huge influence on the world. Knowledge in extreme stands grows slowly and erratically with the addition of new data. Sometimes it changes extremely, and possibly at an known rate. News Make You Understand Less of The World I could not agree more with Taleb when he talks about the media often confusing people about the world instead of helping them understand.
The author says that the media falls for the bias of looking for causes to random events, but makes the process even more credible -and dangerous- by using an army of fact checkers to give n appearance of thoroughness.
Media brings the sensational and the black swan to the fore, which leads us to overestimate its impact, while it leaves in the dark all the other black swans, leading us to severely underestimate them. He says that sex, profeession and social class are much better predictors of behavior and personality than nationality.
He also adds evolutionary psychology as another popular field where people go hunting for causes, and I could not agree more -and be equally annoyed by-. Black Swan and Rational Limits Taleb talks about how we are liable to exaggerate the risks of known black swans, such as terrorism, and radially underestimate the black swans that we know nothing about -most of them anyway-.
He also introduces system 1 and system 2 thinking from Thinking Fast and Slow by Kahnemann and The Society for Judgment and Decision Making , which I will look into becoming a member because it sounds awesome. He says that politicians throw money at publicized disasters.
But to do so, they divert funds from equally important causes and who says which cause is more important? Exactly, there is no real study behind it and no really well-thought theory.
And, the author says, these unseen consequences can be, and generally are, more meaningful. It was so noble on their part to do something something so humanitarian, to rise above out abject selfishness.
Did they promise to do so with their own money? No, it was with public money. He says he is not against risk, but against the encouragement of uninformed risk taking.
We take risks often not out of bravado, but out of ignorance and and blindness to probability. Says Taleb: The fools, the Casanovas, the blind risk takers, are often the ones who win in the short term. Of course, in a black swan environment one single rare event can come up to shake up species after a very long run of fitness.
Black Swans and Evolution Some people have a tendency to see evolution as this magical invisible wand that moves species towards better and better states. Nothing could be further from the truth. These tools are casting doubt on randomness, and refuse to acknowledge its realistic waves. They also provide future predictions and precise explanations as worst as possible.
Even a movie starring Natalie Portman is set to give you a hint on the future while recalling memories and memorable events. It was not possible to predict that the Black Swan existed before it was first seen. Rare events like the first Black Swan occur more often than we imagine and our minds are programmed to deal with what we have seen before. However, extreme events usually occur and have significant impacts.
Our tendency to ignore them comes from the fact that people tend to underestimate their ignorance.
There is much that we do not know, but since feeling ignorant is something that does not make us feel good about ourselves, we tend to downplay this characteristic of ours.
We create stories where they do not exist. Human knowledge is constantly growing and evolving, and the dogmatic approach we tend to take makes no sense.
We cannot be sure of our beliefs, for they make us blind to concepts that are outside what we believe to be true. Black swans are the events that cause vast cognitive transformations, whether minor or enormous, such as the destruction of a sector in the stock market or a political crisis.
The only way to be aware of these impacts is information.
The more ignorant you are, the more likely you are to be surprised by a swan. The more informed you are, the less likely you will be hit. A Black Swan can transform the whole modern understanding of science, impacting philosophy, theology, and physics.
In the 15th century, when Nicolaus Copernicus proposed that the earth was not the center of the universe, the consequences were immense, at all levels. He challenged religion yes, the Catholic church suffered major impacts , but also paved the way for a cultural change in society and science. To better understand the impact of the unlikely, Nassim Taleb divides human knowledge into two main areas of randomness, separating the two major groups of unlikely effects in our lives.
By dividing the improbable into two large groups, it becomes easier to understand how it deceives us and thus proves our inability to make predictions. The first of them is called by Taleb of Mediochristian, describing a land where averages are the rule. In Mediochristian our sampling of information and data available is very large, and no single fact will change the way the model works.
The data in this context is not scalable, as it has defined a minimum and a maximum limit. Examples of Mediochristian information are, for example, physical characteristics such as height and body weight, and even IQ.
Since the properties of such non-scalable information are certainly limited, it is possible to make relatively accurate predictions about the means. In Extremistan, the information is so disproportionate that a single observation can dramatically impact our observations and mislead our ability to make predictions.
The Black Swan PDF Summary
Examples of data and information emerging from the Far East are far more diverse. Examples include: Deaths in terrorist attacks, book sales by an author, inflation rates. Other than data such as height and weight, wealth distribution and album sales are scalable items. For example, you can sell your book in digital format through site infinitely, because the digital format does not require you to print a book with each copy sold.
Another example is wealth, which is highly scalable: And if you analyze the data looking at the average, you can be deceived with a representation of the income distribution that does not accurately reflect the reality of people. Be careful not to be turkey on Thanksgiving Day… Imagine the following scenario.
You are a turkey, which is fed daily, well taken care of every day, for years and your life is going ok. But on Thanksgiving, a surprise occurs. You are not fed, you are murdered and eaten by the people who feed you. That is the metaphor that Taleb uses to illustrate how to observe the past to predict the future. It also proves that the Black Swans are relative. For you the turkey , the Thanksgiving dinner is definitely a Black Swan, but for the Thanksgiving dinner cook, there is no surprise in this event.
We often look at our lives as if things were happening in the Mediochristian, when, in fact, life occurs much more in the kingdom of Extremistan. To learn to deal with this, one must accept, embrace and understand the unpredictable nature of the world, rather than ignore it. That will not make you not be the turkey, but at least it will allow you not to get accustomed to the status quo.
Our brains play tricks on us. We tend to conclude that similar sounding phrases have absurdly different meanings. The lack of proof that something exists does not mean that it does not exist. It is not because there has never been an earthquake in your city, that it will never occur, will it? But given our ignorance, to seek evidence that what we believe is real can greatly limit our line of thought and make us ignore information that does not support our beliefs.
It is often more valuable to search for facts that go against our beliefs than those which support it. That leads to much more powerful discoveries and allows us not to be blinded.
The Black Swan: Summary & Review in PDF
Another flaw in our operating system is that we are in the habit of creating stories based on collections of events that occur in our lives. The author calls this failure a narrative fallacy. It is characterized by exploiting our limited ability to analyze sequences of events without adding an explanation to them. Explanations tie the facts and make them easier to remember, but our brains always seek to tell a story where events are correlated and meaningful.
However, by condensing facts into a single narrative, we end up generating a loss of information and have a great tendency to oversimplify things. We discard the data that makes no sense in our history, and that leaves us at the mercy of the swans.
According to cognitive psychologists, we have two kinds of thoughts. Type 1 thinking is instinctive, fast, immediate, and based on your experience with the world. This system is advantageous for having high speed and helps you react quickly to external stimuli but is also very prone to errors. System 2, on the other hand, is slow, rational and self-aware, much more useful in the classroom not at a time of quick thinking between life and death.
The problem is that we often confuse thoughts from system 1 with system 2 because at level 1 we have no control over them. Often, we believe that the thoughts that come from system 1 are based on analysis rather than reflexes, and this harms our cognition.
The Black Swan Summary
System 1 leaves us blind to Black Swans and often misinterprets them as well. System 1 considers primarily anecdotal data and based on our experience rather than using statistics or empirical data. Know your brain.
Have you ever dreamt of being a great author or creating a great company in an innovative market? If this is what you seek, Taleb has an interesting point of view. The human being needs constant, tangible results and rewards to continue to pursue something.
A number of small, constant rewards usually bring more happiness and fulfillment than a substantial reward.
There are two types of progress. The uniform and linear, and the nonlinear, which tend to occur in large jumps, alternating with stagnation.
But while we prefer to believe that the world works in a linear perspective, this is not the right way to approach the problem. Nonlinear situations are the most constant in life, and linear conditions tend to be the real exception. His learning comes from things so diverse and in many cases random that to believe that the linear model is the best model ends up becoming a fallacy.
Besides, the humans have the limitation that in viewing the past, they select the parts of a process that fit his impressions and ignores the parts that do not conform to his preconceptions.
Our mind creates a record that ignores the facts which do not fit our mental model, and Taleb calls this the silent evidence. For example, humans tend to see authors of famous books as extremely talented and attribute the reason for their success to their talents.Extreme Stand and Knowledge Dealing with mediocre stand means that you can more easily measure the whole population by looking at a few hundred cases. Their theory overlapped with the fact that every swan they examined had a snowy white plumage.
For centuries, Euro- demic, We discard the data that makes no sense in our history, and that leaves us at the mercy of the swans. He further notes that the patterns of can be understood in terms of normal distribu- these phenomena often do not appear within a tions e.
Great People Were Lucky One of the most, hardest-hitting theories of Taleb is that of randomness of rewards. So you do not have to worry about risk management and place yourself partially at the mercy of Black Swans.
There is a law in statistics, called the law of iterated expectations.
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