The Black Swan

“The sighting of the first black swan might have been an interesting surprise for a few ornithologists, but that is not where the significance of the story lies. It illustrates a severe limitation to our learning from observations or experience and the fragility of our knowledge. One single observation can invalidate a general statement derived from a millennia of confirmatory sightings millions of white swans. All you need i one single black bird.”(Prologue)

“The Black Swan” is a book which has been written by Nassim Nicholas Taleb, published originally in the year 2007. Mr. Taleb is a former banker who worked on wall street during the market crash of 1987. The book has been written in an essayistic form, explaining concepts with the help of short essays and personal stories.

The author cautions us from taking things we know too seriously, he criticises economists and financial analyst’s the most for doing this, taking them on for trying to predict the future with certainty using mathematical and statistical models. The author argues that nothing is certain in the future due to the existence of black swan events. He uses an example to explain this, in the 1990’s, the firm at which he worked, decided to make a plan for the following 10 years, little did they know that the very people who made the plan would be out of a job in a matter of months due to the Asian Financial crisis.

The author goes into the various mistakes we make will making estimations. Such mistakes, to name two, include narrative fallacy and ignoring silent evidence. Further, the author divides events into two categories, Non-Scalable and Scalable events, he places them into two hypothetical countries, Mediocristan (Non-Scalable events) and Extremistan (Scalable events). He argues that we tend to use statistical methods of estimation (Gaussian Bell Curve) which should ideally be applied only to events belonging to Mediocristan, on Extremistan as well. This he argues is one of the reasons we tend to miss black swan events.

In conclusion, the author gives us ways in which we should prepare ourselves for black swan events, since, such events are here to stay and all we need to do is identify them.

The book provides readers with an understanding of “extreme” events, explaining how we must first identify the characteristics of an event and only then apply methods of estimation. The book would be of great interest to anyone interested in the field of statistics or prediction. The book also helps readers develop their understanding of what may have actually caused the crisis of 2008, failure of prediction.

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