Book Review: The Black Swan by Nassim Nicholas Taleb
Here is the review of another book on probability by the "financial dissident" Nassim Nicholas Taleb. If you still haven't read his previous book — Fooled by Randomness — it is strongly recommended that you do so, even if you aren't into trading. His next book — The Black Swan — became a major bestseller and is a very important book, both for traders and for everyone else who works with the randomness.
The main idea of the book is that we cannot avoid the Black Swans (rare events that are unpredictable in their nature) but we can try to decrease the amount of "bad" Black Swans in our life and increase the amount of "good" Black Swans — first, by admitting that our knowledge is very limited and by stopping to act like we can forecast rare events and, second, by choosing the life strategies, in which our potential success would be scalable and could surpass the potential failure. Other than that, the book offers the following important theses:
- What we don't know can be more important than what we think we know.
- We live partly in Extremistan and partly in Mediocristan. Rare events are very important (and are unpredictable) in Extremistan. Rare events have little impact in Mediocristan and they usually can be predicted there.
- Financial analysts, experts, strategists, portfolio managers generally don't possess much knowledge about the reality of their profession, but for some reason, general public listens to their opinions. Taleb sates that it is totally unjustified.
- The bell curve ("the Great Intellectual Fraud"), although is a viable model in Mediocristan is a fallacy in Extremistan.
- The modern world is becoming more of Extremistan and less of Mediocristan.
- Our minds are bound to search and unite different facts and reasons — that is the problem of the narrative fallacy.
- Pure probabilities don't exist in Extremistan, they are properties of the artificial models — such as casinos and study problems.
- Fractal models of probabilities cannot predict the impact of the Black Swan, but they can give a slight hint, making a Black Swan gray.
- In Extremistan, metaphorically speaking, if you don't chase the train, you don't get frustrated by missing the train — if you don't rely on the appearance or the lack of the Black Swans, your state of mind won't be disturbed by them.
Although most readers like Taleb's previous book (Fooled by Randomness) more, this one also deserves attention and is very interesting despite the small amount of the new ideas compared to his previous work. Here are some advantages pointed out:
- It is an interesting read due to the literary style of the author. You could only imagine how boring could the book on such topic be had it been written by some "professor".
- A deeper understanding of the rare unpredictable events compared to Fooled by Randomness.
- More practical advices. They are more of ideas than advices but still can be quite helpful.
- The book with praises to both Popper and Mandelbrot in it is definitely worth buying
To balance this very positive review, it is worth mentioning that you will probably like Fooled by Randomness more than this one. Let's also list some disadvantages:
- As it was the case with Taleb's previous book, the structure of the book is quite poor, there is still a lot of jumping from subject to subject even inside
- Nassim Taleb is a genius, but his style is quite heavily ridden with snobbery of an erudite and intellectual.
- There are many things to disagree on with the author and that require further discussion. Of course, this doesn't eliminate the importance of the main problem of the book.
To sum it all up, if you still haven't read Fooled by Randomness, read it first. If you liked it and want more, read The Black Swan. If you didn't like it, then there is no reason for you to read The Black Swan. But, apart from the direct usefulness of Taleb's books, there is always a big portion of aesthetic pleasure in reading them. So, if you are looking for something to read, you can always stop by The Black Swan and combine the useful with the pleasant.
If you have any questions, comments, or opinion regarding The Black Swan by Nassim N. Taleb, feel free to discuss it on our Forex forum.