A number of books on probability I have read recently talk about Nassim Taleb’s book, The Black Swan: The Impact of the Highly Improbable.
Sometimes I wonder if some of the citations and due to the Black Swan meme. It is a great term to use for unexpected events. Capturing the phrase makes it more citable. However, that is not to take anything away from the book. Many have called it one of the most influential books of the past 50 years. The Nobel laureate Daniel Kahneman is quoted as saying
The Black Swan changed my view of how the world works
Interesting Taleb goes on a small rant about the Nobel Prize. He questions the validity of some of the winners (though this is increasingly looking correct to do so) and also quotes others who have suggested that the Nobel Prize was a PR stunt designed to put economics on the same step as the natural sciences. Of course, he has not won one yet…
Anyway, the premise of the book is that we often assume that we live in a world known as Mediocristan in which distribution is on a bell curve. Outliers can only go so far. Height for example, you can only deviate so far from the average. However, the great challenge for society is that we actually live in Extremistan, where outliers can deviate significantly. These are the unknown unknowns as Donald Rumsfeld would put it.
How we deal with them is a difficult one. They are the unpredictable, and therefore by their very nature, we cannot predict them. Rather, we need to be prepared to handle them when they inevitably do happen. Forget trying to predict the next outlier that is completely missed by our models and instead try to robust enough to cope when negative ones happen (as well as taking advantage of the positive ones).
The book also deals with human thought processes, in particular our need to turn everything into a narrative. Most skeptics will know that one of the problems with the world is that anecdotes are more easily accepted than data, which makes it so far to get the skeptical point of view across. The issue also causes a lot of bad thinking – we fit things into a narrative that simply do not belong in one.
It is however, something we can turn to our advantage when we recognise it. For example, when going over an unpleasant situation or memory, insert it into a narrative that makes it unavoidable. Also writing down your problems in a narrative can make you feel less guilty about them. Anyway, that is just a small aside.
One of the key messages that I think we should take from Taleb, is the same message that we can take from most of the books I have read recently – that our thinking is flawed, but by recognising those flaws and trying to spot the weakness we know are there, we can be a little less stupid.
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Tags: black swan, forecasting, prediction, probability
This entry was posted on Friday, August 15th, 2014 at 11:20 am and is filed under Books. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.