The Black Swan Summary: Nassim Nicholas Taleb

The Black Swan Summary

The Black Swan Summary provides a free book summary, key takeaways, review, quotes and author biography of Nassim Nicholas Taleb’s book.

As per critic Harold Bloom, Hamlet’s problem isn’t over thinking. Instead, its that he thinks very well. And thus, he’s not able to rest in any illusions. The same holds true for trader, philosopher, and author Nassim Nicholas Taleb. He finds something nasty in highly confident traders, investment gurus, MBAs, and CEOs. These people claim they can explain the past and forecast the future. But, Taleb says that like others, these so-called experts don’t appreciate “black swans.” Black swans are highly important but unlikely events. These events make predictions worthless. Taleb’s writing style is literary and personal. But, his untraditional visions are demanding. This mix makes for an exciting, disturbing and unforgettable read. Taleb gives a strong medicine few might find too bitter. But, we recommend this book The Black Swan to all those wanting a strong vaccination against naivety.

“The modern world… is dominated by rare – very rare – events.”

This Summary Will Help You Learn

  • Why black swans are not appreciated;
  • How to accept uncertainty and black swans; and
  • Why people see unreliable trends in data all the time.

Take-Aways

  • “Black swans” are critical but unlikely events. It’s easy to explain them but just in retrospect.
  • These events have shaped business, science, technology and culture’s history.
  • With the world becoming more linked, black-swans are gaining more importance.
  • The human brain is subject to many biases and blind spots.
  • Among the most wicked biases is a misuse of standard statistical tools. For example, “bell curve” which neglects black swans.
  • Other tools like “power-law distribution” are better at showing many key trends.
  • Advice by an expert is often useless.
  • Much of the prediction is
  • Expert advice is often useless.
  • Most forecasting is a false belief.
  • You can train yourself to beat the mental biases and praise uncertainty. But it’s not simple.
  • It’s possible to insure against negative black-swans while getting benefits from positives.

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The Black Swan Summary

When All Swans Were White

Before 1697, European school kids were taught that all swans are white. They didn’t have any reason to think the opposite. Because each swan ever examined was white. But then came Willem de Vlamingh, a Dutch explorer. He landed in Australia. This land had many odd creatures. For example, kangaroos, koalas, and platypuses. It’s there that he found dark colored birds which seemed like swans. Black swans? Yes. Once seen, they forced Europeans to change their idea of “swan.” And over time, black swans became regular creatures.

This is a typical pattern. Only because one hasn’t seen a black swan, doesn’t mean they aren’t there. Unlikely situations look impossible when they’re in the future. But, when they occur, people merge them into their idea of the world. The extraordinary turns ordinary. And experts curse themselves as they didn’t forecast this unlikely event. Consider the WW I and II. Or the 9/11 terror attacks. And for those matter inventions like the Internet and the computer. Cultural trends like the Harry Potter series are also the same. Such inventions and events came from nowhere. Still, when reflecting, they look predictable. Why?

The Marvels of Human Brain

The human brain is great at simplifying the attack of today’s confusion of data. This makes total sense. After all, the mind is a product of evolution. It works with whatever it has. And, so it hasn’t created any new, perfect mental system. The human mind is no less than a marvel. But, it’s made for living in hunter groups of Africa 200,000 years ago. Then, it only had to be good enough to enable people to survive. Biases, simplifications, plans – there aren’t bugs. Instead, they’re useful things which allow the brain to focus on the task. And not get bogged down by an endless amount of data. But, these simplifying systems aren’t without some costs. For example, take the stories.

The Narrative Fallacy

Stories are useful in remembering. They also make sense of the history. Consider a typical magazine profile of a famous businessman. The story starts today when he has become wealthy. Then, the story goes back to his modest beginning. That is, he began with no means and wanted to become wealthy. He faced hurdles after hurdles. But, he made smart decisions and ignored the wisdom of people who advised caution. With money came more money and he made a fortune. He retired soon, married a beautiful woman and has brilliant kids. His merits will be praised in a business school case study. MBA grads will sit at his feet on his visit for a lecture. So, he’s an inspiration, a superman.

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But, What About the Opposite?

Now think of the other possibility. He got lucky. His merits didn’t have anything to do with his success. He’s a lottery winner. Everyone else sees his life and makes a story of how great he was. But, the fact is, he was just at the right place with the right timing. This is “ludic fallacy.” Meaning, people tend to misjudge luck in life. Though they sometimes overvalue it in some games of chance. Even that businessman falls prey to wrong thinking. He sees himself as a sample from the lot. Then he draws a broad conclusion – Anyone can do it if I can. He’ll apply the same logic had he just bought a winning ticket of the lottery. “I’m a mastermind for choosing 32874516. All that probability doesn’t mean anything. After I won it didn’t I!”

So, Is All Success Luck?

No, not every success is luck. In many professions, skills are also critical. For example, if you’re a dentist. But, in others, yes luck dominates. In the case of the great businessman, think about his population unit. Where’re all other similar people who began like him and hold similar traits? Are they also wealthy? Or are they broke? Often you can’t get such type of “silent” disconfirming proof. Artistic success is an ideal example. Balzac is very famous now. But many other equally good writers were doing similar work at that time. Still, their works are lost as they weren’t successful. Their failure hides the proof that they’d beat Balzac’s success as a unique writer. Hence, the evidence is silent, lost somewhere in the past.

The brain uses many other simplifying plans which may lead to mistakes. Once people get beliefs, they look for proof which confirms their beliefs. This is what we call “confirmation bias.” Hence, they become arrogant and overconfident about their beliefs. In this process, they fail to consider randomness. They tend to even out the jumps in a time series. This is to seek trends which aren’t there. Their general groups limit what they can see. So, they go to experts for help. But, such experts are also no better, and even worse. Worst is, people fail to take into account black swans. 

The Black Swan Summary: Nassim Nicholas Taleb

“Mediocristan” or “Extremistan?”

So, the human brain evens out the rough reality. Does this matter? Yes. It can matter. And a lot depending on if you’re in “Extremistan” or “Mediocristan.” Where are these odd places? Not anywhere. They’re just memorable images to remember two different groups of natural occurrences. Mediocristan is the phenomena one can define with basic statistical concepts. That is the Gaussian distribution otherwise known as “bell curve.” Extremistan means a single, curve-distorting person or situation that can tilt a distribution. Consider naming Bill Gates in a comparison of incomes of executives. 

For better understanding, consider human height vs. sales of movie tickets. Sample humans may have some tall people and some short ones. But, you’ll not see anyone 3,000ft tall or just an inch tall. Nature, in this sample, limits the height. Now think of movie ticket sales. A superhit film can have sales which go beyond the average value. So much so that it’ll be misleading to model the sample with a bell-curve. Hence, it makes the idea of “median value” worthless. It’d be better to use a different curve for this data. For example, the “power-law” curve from Vilfredo Pareto’s work. In such a distribution, extreme situations aren’t seen as different. Instead, they determine the curve’s shape.

Do Social Phenomenon Follow Same Pattern? 

You can’t model social occurrences with a Gaussian distribution. It’s because such events have many feedback loops. For example, you want to view a hit film is because others have seen it. And they’re talking about it. Hence, it turns a cultural event you don’t plan to miss. And neither do the others. In such cases, the “rich become richer.” Hence, the hit movie gets even more fame when more people see it. And talking of rich, money also follows this trend. The very rich aren’t merely a little richer than ordinary rich people. Instead, they’re so much richer that they tilt the distribution. So, imagine Bill Gates, and you share a cab. The average wealth in that taxi will be north of $25bn. But, the distribution won’t be a bell shape. When this occurs, chances are you’re not in Kansas. Instead, you’re in Extremistan.

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Phony Forecasting (or Nerds and Herds)

Extremistan may not be that bad in some cases. That is if you can tell when external events will happen. And, also to their extent. But, it’s not possible for anyone to do it accurately. Think about superhit films. William Goldman is popular for explaining the “key” to Hollywood hits. He says no one can forecast one. Also, no one could tell Harry Potter books will make J.K. Rowling a billionaire. Share prices are also similar. Anyone claiming to be able to tell the stock prices in the future is fraud. Still, magazines have too many “insider” advice ads on the market’s future. Same applies to technology. Do you know what will be the next big thing? No one can understand this. People who predict often miss the key events, i.e., the black swans.

Draw these mistakes up to “nerds and herds.” Nerds can think in ways of the tools they’re taught to use. When you have a hammer, all things become a nail. So, imagine if you only have Gaussian curves, sigma, and mild randomness. In this case, you’ll view bell-curves all around. Also, humans have a herd mindset. Hence, they seek expert guidance. Still, few areas can’t have experts. Because the thing experts should know is very random. Such uncomfortable thought needs some soothing. So, they believe that the world is more uniform than it is. Such a calming belief often serves people good. Then comes a downside or upside. And the curve gets shot. 

“We respect what has happened, ignoring what could have happened.”

Befriending Black Swans

  • Keep your eyes open for black swans – Identify when you’re in Extremistan instead of Mediocristan. The rich-getting-richer idea is a hint that you’re in Extremistan.
  • Beliefs are “sticky,” but don’t get glued to them – Stick by your beliefs in all cases. Be brave enough to say, “I was wrong.”
  • Know where you can be a fool and where you can’t – Are you trying to predict oil price in 16 years after investing there? No one can help to be stupid. But, sometimes stupidity is harmful, and at times it’s kind.
  • Know that in many cases, you cannot know – Think beyond your regular ideas. Stop finding out what’s correct. Instead, remove options you know are wrong.
  • As a forecasting period lengthens, prediction errors grow exponentially – Delay decision where the proof is not enough. Also, be careful of overly accurate forecasts. You must focus on the after-effects, not possibilities.
  • Expose yourself to “positive black swans” – And, insure against the negative ones at the same time. Seek irregular events where positive impacts are higher than negative ones.
  • Look for the nonobvious – Prove false the pet theories. Consider, “what situation will beat this theory?” Don’t stack up confirming proof just for consistency. Because collecting confirming proofs don’t prove a theory.
  • Avoid dogmatism – Don’t forget that stories in the past mislead. This’s the entire point. They’re mental weapons against the arrows of the future. Avoid herds and nerds. And think on your own.

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The Black Swan Review

The Black swan is related to the confident traders, gurus of investment, efficient CEOs, and MBAs. The author talks about the traders for the past and future forecast. After reading the book, I come to know about the people and their views related to the business tycoons. The black swans are some unlikely explainable events that predict events with more vision. I would recommend the book to other friends especially those who want to learn a lot about the business terms and ways to make the business more prospectus.

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The writing style of the book is personal and literary that includes untraditional vision and demanding expert style. The events in business have the vivid impact, in the society and marketplace, the black swans cannot be appreciated. The business decisions and strategies should accept the uncertainty relation between the black swans. In the real sense, as mentioned in the summary of the book, the shapes of events are due to technology, culture, science, and history. The brain of human beings in the business and real life is subjected as a blind spot and goes through many biases. The misuse of any standard statistical tool have an impact on the business for instance in business the bell curves are neglected that is a black swan.

Some inventions like the computer and internet have produced an impact on the world and turned business for the traditional and cultural trends. The system of the human brain is to build plans and to tasks. The narrative fallacy was the topic that I liked the most. The decision and advice induce impact on the business. Each action and decision in the business requires logic and absence of logic increases dominated failure.

The Black Swan Summary: Nassim Nicholas Taleb

The Black Swan Quotes

“The modern world… is dominated by rare – very rare – events.”

“We respect what has happened, ignoring what could have happened.”

“We humans are an extremely lucky species, and… we got the genes of the risk takers. The foolish risk takers, that is.”

“We like stories, we like to summarize, and we like to simplify, i.e., to reduce the dimension of matters.”

“Now, I do not disagree with those rec­om­mend­ing the use of a narrative to get attention… It is just that narrative can be lethal when used in the wrong places.”

“Notice that close to two centuries ago people had an idealized opinion of their own past, just as we have an idealized opinion of today’s past.”

“I know that history is going to be dominated by an improbable event, I just don’t know what that event will be.”

“Prediction, not narration, is the real test of our un­der­stand­ing of the world.”

“I find it scandalous that in spite of the empirical record we continue to project into the future as if we were good at it, using tools and methods that exclude rare events.”

“What matters is not how often you are right, but how large your cumulative errors are.”

“Put yourself in situations where favorable con­se­quences are much larger than unfavorable ones.”

“We mis­un­der­stand the logic of large deviations from the norm.”

“Every morning the world appears to me more random than it did the day before, and humans seem to be even more fooled by it than they were the previous day.”

The Black Swan Summary: Nassim Nicholas Taleb

About the Author

Nassim Nicholas Taleb is a Dean’s Professor at the University of Massachusetts in the Sciences of Uncertainty. He was earlier a derivatives trader. Taleb also teaches at the NYU’s Courant Institute of Mathematical Sciences. He even wrote Fooled by Randomness.

Feedback

After reading this The Black Swan Summary, what do you think? Is The Black Swan an excellent book for reading? Please feel free to share your thought with us. We are happy to receive your comment on it.

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Best Selling Books

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The Black Swan: Second Edition: The Impact of the Highly Improbable: With a new section: 'On Robustness and Fragility' (Incerto)
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10 COMMENTS

  1. Motivating Concepts!! However the idea of “prediction” requires access and knowledge to information! Good lecture. He seemed so pompous at the beginning, but after the first few minutes, became much more charming. What’s the deal with that? All that money, all that knowledge, all that access, and not a single person who understands microphone feedback.

  2. It was great to know about this concept by the author that black swan is based on unpredictable events, which can have massive impacts on society. It was interesting to learn that experts think that unlikely events can be forecast, but in reality it never happens, and great examples for such unpredictable events are WWI, WWII as well as terror attack of 9/11

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