‘The Black Swan’: By Nassim Nicholas Taleb

‘The Black Swan: The Impact of the Highly Improbable’ is an astonishing book! It makes the readers question everything they have been taking for granted all along; and puts faith back in some of the things they had been ignoring out of no reason. I had heard about the book many times but got the chance to read it recently. (I found the book in the library; started reading it; found it brilliant; then bought it for my own home-library).

So what is a Black Swan? According to the author Taleb, a Black Swan has three attributes:

1. It is an outlier, as it lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility.

2. It carries an extreme impact.

3. In spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable.

The book does a wonderful job to sensitize us on the subject. 

In the initial portions of the book there are more references to history; a subject I am infatuated with. To make it more interesting, the portions of history the author wants to recall had something to do with religions. And these portions have come out so well!

For example, in the initial pages, where author describes history of Lebanon, I could not avoid wondering a bit about our own country's history, complacency of our majority and where our anarchy and pseudo-secularism could lead to. Check it out:

Lebanon was incorporated after the fall of the Ottoman Empire (like India was after the British). It was a Christian majority nation with Muslims being next (like India being Hindu majority). Author writes, "In a classical case of static thinking, nobody took into account the differentials in birthrate between the communities and it was assumed that a slight Christian majority would remain permanent" (exactly like in India). Author continues, "So in addition to being called a "paradise", the place was also said to be a miraculous crossroads of what are superficially tagged "Eastern" and "Western" cultures." (exactly what we are proud of in India). Then he writes about the student protests that started happening where protesters wore 'different' clothes. In author's words, "It is one thing to be cosmetically defiant of authority by wearing unconventional clothes - what social scientists and economists call "cheap signalling"..." (the anna topi clad anarchists in India who dress to seek attention). Perhaps it was just the beginning. Next something really serious happened, in author's words, "The Lebanese "paradise" suddenly evaporated... after close to thirteen centuries of remarkable ethnic coexistence (in India we pretend as if only we had it)... a fierce civil war began between Christians and Moslems, including the Palestinian refugees who took the Moslem side." (any surprises?) "The conflict lasted more than a decade and a half". Then author tells that "exodus of Christians" accelerated; and in his words, "number of cultured people dropped below some critical level." Nassim says, "Suddenly the place became vacuum. Brain drain is hard to reverse, and some of the old refinement may be lost forever."

This is so much food for thought... If you know the history of India and the history of Jammu & Kashmir in particular, you would not remain without getting touched by the above.

In another portion, author is trying to drive in the idea that some events are so unpredictable and he gives examples of rise of some religions. It seems even the events that are happening today in front of our eyes, we don't know how serious or far-reaching those can become in future. In Taleb's words: 

"Who predicted the rise of Christianity as a dominant religion in the Mediterranean basin, and later in the Western world? The Roman chroniclers of that period did not even take note of the new religion - historians of Christianity are baffled by the absence of contemporary mentions. Apparently, few of the big guns took the ideas of a seemingly heretical Jew seriously enough to think that he would leave traces for posterity. We only have a single contemporary reference to Jesus of Nazareth—in The Jewish Wars of Josephus—which itself may have been added later by a devout copyist. How about the competing religion that emerged seven centuries later; who forecast that a collection of horsemen would spread their empire and Islamic law from the Indian subcontinent to Spain in just a few years? Even more than the rise of Christianity, it was the spread of Islam (the third edition, so to speak) that carried full unpredictability; many historians looking at the record have been taken aback by the swiftness of the change."

Reading these portions it is tempting to think that the book has more of such portions; that this book is more about history and society than about economics; but alas. The later portions are as dry as sand of the deserts and do not maintain the initial ‘tempo’ (on history).

Later parts of the book discuss world of economics, finance and politics, mostly brushed with author’s skepticism. I would say that the later parts are also brilliant but too over stretched, exaggerated and reflect author’s excessive infatuations with his own ideas which he drives and drills into readers’ minds just too much. It would rather be better if he just wrote his ideas than trying to drill those repeatedly as if he gets sadistic pleasures out of the experiences. I am particularly troubled by the disdain and insults he hurls at fellow authors, famous economists and scientists who are respected for their work. The author takes each of the selected scientists' and the economists' works in isolation, as if those were meant to be sufficient and exclusive; and misses the point that individually and separately even though their ideas and discoveries could be refuted; as a “collection” and in their own “positions” those were invaluable contributions towards historical evolution of science and scientific discoveries. For example, can we laugh at the person who invented the 'wheel' first because of the fact that the wheel in itself is rather useless; since no one can sit over it forget about travelling on it. Wheel’s purpose is served, as a means of transportation, only if it is fixed in a bicycle, motorbike or a car, all the three happened subsequently and consequently by building upon their past ideas and knowledge. But if the inventor of bicycle tried to avoid using a wheel just in order to be thoroughly novel, creative and ‘original’, would we get the bicycle at all? But the brilliant author Taleb, as if drunk in the fame he got and the potential fame he expected to get, ignores sensibilities and does not try to put things in right perspective in order to appreciate their values. And hence, he goes after one scientist to another; one economist to another; trying to shoot everyone down by finding faults or incompleteness in their ideas or contributions, and a reader like me feels exasperated and exhausted. Therefore, by the time I reached the “forth quadrant” of the book, I was a tired man.

I wanted to pick up some of the portions where the author has become too caustic and un-enjoyable, but having gone through those once while reading the pages, I think it is not a good idea. But I think I should pick at least a few to elaborate my point:

Let us take the portion where the author says the following under the heading “Redundancy as Insurance”:

“Look at the human body. We have two eyes, two lungs, two kidneys, even two brains (with the possible exception of corporate executives) – and each has more capacity than needed in ordinary circumstances. So redundancy equals insurance, and the apparent inefficiencies are associated with the costs of maintaining these spare parts and the energy needed to keep them around in spite of their idleness.”

Using the above “observation from nature” as a “proof”, the author recommends “keeping some money under the carpet”, i.e. idle, which essentially means to recommend the “safety stock” mindset. So the author would like manufacturing companies to keep lots of inventories – because who knows what happens in future? Now use the same logic to the present date Crude Oil prices fluctuations – what would have happened if you had bought crude oil at the rate of 150 USD per barrel, when the prices crashed to 50 USD per barrel in no time? Won’t such a company go “bankrupt” too? But it seems the author is so infatuated with his ideas which he sees preventing potential bankruptcies that he does not consider the ‘180 degree problem’ (my term).

At another place, Taleb says that government should ban complex financial schemes because no one actually understands those. I think it is a very simplistic view. Even though it is true that most small investors don’t understand all the terms and conditions and don’t read scheme related documents; but the regulators normally do; or large institutional investors do; and if both of these don't then the 'competitors' definitely do; and if the schemes are too complex, people are worldly wise enough anyway not to fell prey to the sales pitch. But to devoid this world of creativity and new ideas; and force everyone to make a Hobson’s choice to choose investing between either a Fixed Deposit and Recurring Deposit, just because these two are “simple enough for all to understand” is a naive position.

Similarly, the author stretches the Fractal Geometry of Nature too much; in the below portion:

“Consider that the great Galileo, otherwise a debunker of falsehoods, wrote the following:

The great book of Nature lies ever open before our eyes and the true philosophy is written in it. . . . But we cannot read it unless we have first learned the language and the characters in which it is written. . . . It is written in mathematical language and the characters are triangles, circles and other geometric figures.

Was Galileo legally blind? Even the great Galileo, with all his alleged independence of mind, was not capable of taking a clean look at Mother Nature. I am confident that he had windows in his house and that he ventured outside from time to time: he should have known that triangles are not easily found in nature. We are so easily brainwashed. We are either blind, or illiterate, or both. That nature's geometry is not Euclid's was so obvious, and nobody, almost nobody, saw it.”

Then the author goes on to explain “Fractality” which means in author’s words, “The veins in leaves look like branches; branches look like trees; rocks look like small mountains. There is no qualitative change when an object changes size.”

To doubt Galileo’s eye sight is easy but if we use some brain to evaluate the above 'Fractality' concept, what conclusion we come at? I think it is too simplistic to say that “leaves look like branches” and “rocks look like small mountains”.

There are plenty of plants and trees in which leaves don't look like branches at all. 

The author at one place while rejecting Gauss says, "You need one single observation to reject the Gaussian, but millions of observations will not fully confirm the validity of its application." Then why can't we apply the same principle to "reject" this 'Fractality concept' too? 

Similarly not all rocks look like mountains; only a few do?

I shall repeat author's argument: "You need one single observation to reject XYZ, but millions of observations will not fully confirm the validity of its application."

And what is wrong in calling the elevation of these mountains as being “triangular”; as Galileo would have?

What is wrong in calling the sun's 2-D shape “circular”; as Galileo would have?

Another portion where the author seems to be adamant at trying to prove apparently wrong things right is when he tries to justify or “scientify”  the Islamic tradition of “fasting and feasting” during some religious occasions. He justifies erratic over-eating and extreme fasting cycles and says it leads to low blood pressure and better health. Of course he says that the general notion that regular and moderate eating is good does not have empirical evidence. I don’t know why he says that because I have read so many research-based articles where experts advise not to do fasting followed by over-stuffing which has very logically severe repercussions on the health. Some fasting is good for health but not feasting just after fasting for long - as the author claims. As I said before, it seems the author gets too much self-infatuated and thinks that he could justify anything and everything as per his whims or wishes. 

The book has many portions which author has marked with warnings such as “this chapter is too technical, can be avoided by…” But having thirst for more, I went through all such chapters also; and later on I realized that I should have listened to the author. When it comes to economics and debunking common business wisdom, Taleb is brilliant.

Overall, this has been a fascinating read and I recommend this book to all.

© Rahul