The Black Swan is one of the most fascinating books I have read. I had heard of Nassim Nicholas Taleb, before reading the book, but I wasn’t aware how original and eye-opening his thinking was.
Reading this book has fundamentally changed the way I think and the way I look at the world. The Black Swan is the second volume in Taleb’s 5-book “Incerto” volume on uncertainty.
It’s important to make clear that this book has nothing whatsoever to do with the film Black Swan. It’s a very good film, but it’s based around psychology and ballet, while Taleb focuses on statistics and probability.
Taleb’s idea of the Black Swan is an event that comes as a surprise, has a major effect and is often rationalised with the benefit of hindsight.
The term comes from the belief that, although presumed, black swans did not exist. This theory was dispelled when in 1697, Dutch explorers encountered black swans in Western Australia.
Taleb takes this theory and applies it to economics, policy and other areas throughout the book. He highlights how if we’re not prepared for a black swan, the effects can be devastating. While, if we are prepared we can mitigate them.
It is a fascinating book and premise, one which I highly recommend to anyone who wants to understand why we are so bad at predicting the future.
The Black Swan Summary
Takeaway 1 – Models are a terrible way to predict reality
One of my problems with economics has been that they rely a lot upon models. Now, models look great on paper, but they rarely stand up to scrutiny in the real world.
I have felt the same way about political ideologies and theories too. This was one of the reasons I changed my degree part way through from History and Politics to just History. Theories are good on paper, but they struggle in the real world.
The simple answer is that theories are written in black and white, while the world is many different shades of grey.
The financial crash of 2008 is a case in point. It was a black swan event that very people saw coming. If you’ve read The Big Short and seen the film, you’ll know there were a few people who were aware of what was happening, but they were in the minority.
The standard modes used by policymakers in central banks failed to see the crash coming. This seems remarkable, but when you think about it’s not. Looking back, it’s easy to see that hey had messed up.
Hindsight is 20/20 and this kind of thinking is what Taleb calls the Narrative Fallacy. Using the advantage of hindsight to look back and rewrite history.
Models have their uses, but if we use them to try and predict the world. We will run into trouble. There are too many variables that lie outside the realm of a model and can’t be taken into account.
Game theory is an example. It is a theory developed by John Nash. If you’ve seen the film A Beautiful Life, you’ll remember him being played by Russell Crowe. You may also remember that he was a paranoid schizophrenic.
This is important.
“Game theory is a theoretical framework for conceiving social situations among competing players. In some respects, game theory is the science of strategy, or at least the optimal decision-making of independent and competing actors in a strategic setting.”
The problem is that the theory favours a paranoid outlook. It posits that people will look out for their best interests above all else and act accordingly. However, this is not always the case. Sometimes, can choose options that are not optimal, or fly in the face of what you would expect from a game theory model.
The issue is that Nash was paranoid, hence the implications of his model are paranoid. But not everyone is paranoid. So they may act differently than nash would. Game theory is very good at certain things, poker, chess etc, but when it comes to real-world implications it’s not as watertight.
Takeaway 2 – You don’t know what you don’t know
This is one of the most profound statements I have come ever come across. The Greek philosopher Socrates said something similar, “I know that I know nothing.”
No matter how much we think we know, or how much expertise we have in one area, we al have blind spots. We all have things we don’t know. No one has all the answers.
Taleb illustrates this with his idea of an ‘antilibrary’.
The Italian philosopher Umberto Eco read a lot of books, but there were also plenty that he didn’t read. What is referred to by Taleb as the antilibrary.
It’s estimated that he had over 30,000 books in his apartment in Milan and a further 20,000 in his vacation house near Urbino.
50,000 books is more than most people will read in a lifetime, so what’s the purpose of all these books if we would never read them?
Simple. The books were not there to show off his intellectual prowess, they were a reminder of how much he didn’t know.
Taleb illustrates this point beautifully. He states “read books are far less valuable than unread ones.“ It’s a counter-intuitive idea, but it makes sense.
The more books you read, the more your knowledge increases. This is where a secondary factor kicks in. By reading more and more, you realise how little you know.
This forces to read more to plug the gaps in your knowledge. This cycle will keep repeating over and over because knowledge and information are vast and we can only retain and learn so much.
Takeaway 3 – The past is a poor indicator of the future
This is one of the biggest fallacies we make as a species. We tend to look at past events to try and predict the future. However, time and time again, it’s proven not to work.
Sometimes, events occur where there are no precedents. 9/11 is a good example. There had been no terrorist attacks on that scale before, so very few people saw it coming and when it did happen it came as a big shock.
If the past is your guide to the future, a place where nothing is certain, then you’re in trouble. It’s easy to construct a narrative of the future from past events, but it’s incomplete.
Taleb uses the analogy of turkeys at Thanksgiving to illustrate the point.
“Consider a turkey that is fed every day. Every single feeding will firm up the bird’s belief that it is the general rule of life to be fed every day by friendly members of the human race “looking out for its best interests,” as a politician would say. On the afternoon of the Wednesday before Thanksgiving, something unexpected will happen to the turkey. It will incur a revision of belief.”
Just because something has happened for days, months or years does not mean it will continue to happen uninterrupted.
Things happen, unexpected events occur. Change is a constant in life. It’s important to remember this and not get taken in by events f the past when it comes to looking ahead into the future.
- “The problem with experts is that they do not know what they do not know. Lack of knowledge and delusion about the quality of your knowledge come together – the same process that makes you know less also makes you satisfied with your knowledge.”
- “We attribute our successes to our skills, and our failures to external events outside our control, namely to randomness. We feel responsible for the good stuff, but not for the bad. This causes us to think that we are better than others at whatever we do for a living.”
- “Remember that we are swayed by the sensational. Listening to the news on the radio every hour is far worse for you than reading a weekly magazine, because the longer interval allows information to be filtered a bit.
- “Missing a train is only painful if you run after it! Likewise, not matching the idea of success others expect from you is only painful if that’s what you are seeking.”
The Black Swan review
My The Black Swan summary has only touched on a few aspects of the book. To fully understand and appreciate the book, you need to read it.
I don’t say this about many books but reading The Black Swan completely changed the way I looked at the world.
It was an eye-opening read that made me think long and heard about a lot of the previously held assumptions and beliefs I had about the world.
A lot of us think in linear patterns, but the world operates non-linearly. Think of the Coronavirus pandemic or 9/11, only a small minority of people were aware of the potential of these events.
For the vast majority of us, they came as a shock. A true Black Swan event. The premise of the book is that we want to protect ourselves against these vents and the havoc they can wreak.
Along with Antifragile and Skin In The Game, this is one of Taleb’s books that you have to read.
He’s a fantastic thinker and his books will provide you with a lot of thought and many ways you can improve your lives so you can live them to your best ability.
Who should read The Black Swan?
Everyone should read The Black Swan. If all of us read this book, the world would be a much better place and maybe we’d see less financial crashes too.
If you want a better understanding of economics and the effects of nonlinearities, then this a brilliant book.
One thing to note is that it’s a long book and it can be technical in places. It’s not the easiest read, but it is a rewarding one.
Stick with it and you’ll thoroughly enjoy the book and learn a lot!