I have not read any other reviews of The Black Swan: The Impact of the Highly Improbable (hereafter, "The Black Swan"). This is my attempt at a purely independent assessment. Taleb would be proud of me, I think.
In proclaiming, "We Just Can't Predict," Taleb sets the stage for a discussion of unforeseen events, in particular, those of great consequence. A Black Swan is such an event, or "outlier"; it can be an improbable (improbable based on our current knowledge) occurrence outside the realm of regular expectation as well as the nonoccurrence of a highly probable event. Thus, in probabilistic terms, the probability of a Black Swan is unknowable.
As Taleb puts it, the gap between what you know and what you think you know is where the Black Swan is produced. Taleb discusses his Black Swan concept in relation to various examples of human endeavors (ranging from banking and options trading to publishing, filmmaking and venture capital investing), where participants in such occupations generally share the delusion, at least to some extent, that they are better than their competitors at predicting which bets will pay off. That said, perhaps the most important ideas in The Black Swan relate to better appreciating the potential consequences of risk. Taleb cautions the reader not to rank beliefs by their plausibility, but rather by the harm that they may cause.
According to Taleb (who holds "pure mathematicians" in very high regard), economists who attempt to fit the real world to mathematical formulae, models, etc. are frauds. He correctly points out that Gaussian distributions are poor at taking into account the probability and impact of outliers, or Black Swans. (In my way of thinking, an argument can be made that there are probably no, or very few, true Black Swans, at least to the extent that some sentient creature somewhere may have envisioned the scenario prior to its occurrence. Psychics and creative science fiction writers [the former being more credible than the later] do the world little good with their undisseminated precognitions, and anyway… no one [except maybe my Holland Lop ally and spiritual advisor, Bunn Bunn, who coincidentally prays daily for a singularity] can perfectly know the future, so let's continue on.)
In relation to human endeavors, Taleb seeks to draw a distinction between professions that are "scalable" (i.e., "one in which you are not paid by the hour and thus subject to the limitations of the amount of your labor" -- for example, writers, fraudsters and speculators) and those that are "nonscalable" (for example, bakers, prostitutes and doctors). The point seems to be that there is generally little opportunity for those in nonscalable trades to earn, by plying that same trade, any significant amount of money beyond their ordinary hourly wage or salary. In return for this mediocrity, those in nonscalable trades are "collectively consequential" and tend to earn a more steady income than those who pursue scalable professions. In contrast, the income and other disparities between those few Black Swan beneficiaries who made it big in scalable professions and everyone else placing similar yet unsuccessful bets are extreme.
Taleb points out that artists, scientists, etc. living in the dull piecework nonscalable world are under immense pressure. At page 87, Taleb smartly deconstructs the pursuit of nonlinear gratification:
Many people labor in life under the impression that they are doing something right, yet they may not show solid results for a long time. They need a capacity for continuously adjourned gratification to survive a steady diet of peer cruelty without becoming demoralized. They look like idiots to their cousins, they look like idiots to their peers, they need courage to continue. No confirmation comes to them, no validation, no fawning students, no Nobel, no Shnobel. "How was your year?" brings them a small but containable spasm of pain deep inside, since almost all of their years will seem wasted to someone looking at their life from the outside. Then bang, the lumpy event comes that brings the grand vindication. Or it may never come.
In a segue nearly rivaling certain mind-bogglingly stealthy and inexplicably grin-inducing Grateful Dead song transitions, Taleb next tells (reassures?) us, at page 91, that "Mother Nature destined us to derive enjoyment from a steady flow of pleasant small, but frequent, rewards. … The problem, of course, is that we do not live in an environment where results are delivered in a steady manner-Black Swans dominate much of human history. It is unfortunate that the right strategy for our current environment may not offer internal rewards and positive feedback."
An unusually determined, generally resilient, and selectively indifferent sort of person, perhaps iron-willed and extraordinary, but not necessarily so, but certainly capable of suffering interminable intervals of psychic isolation and effective banishment from the society of other humans, could easily throw it all away in a single bet. Such a person, possessed with internal needs exceptional in their incorrigibility, reflexively sneers at the hamster pellet of regular/linear gratification. He can steadfastly dismiss the nagging lure of "pleasant small, but frequent, rewards" and then -- without compromising his integrity in the slightest -- chaotically turn on a die (or for a dime!) to join the nonscalable herd.
Taleb's comments about peer validation are curious. In a decidedly unforeseeable line of reasoning, they perplex in their presupposition that one necessarily has peers!
All kidding aside, when demoralized thoughts of quitting on a dream begin to take hold, and I speak here from personal experience, the Black Swan of incisive and timely encouragement is one of the great miracles of life.
In respect to criticism, there is no sillier place to start (see pages 31-32) than Taleb's commentary on globalization:
And globalization has allowed the United States to specialize in the creative aspect of things, the production of concepts and ideas, that is, the scalable part of the products, and, increasingly, by exporting jobs, separate the less scalable components and assign them to those happy to be paid by the hour. There is more money in designing a shoe than in actually making it: Nike, Dell, and Boeing can get paid for just thinking, organizing, and leveraging their know-how and ideas while subcontracted factories in developing countries do the grunt work and engineers in cultured and mathematical states do the noncreative technical grind. The American economy has leveraged itself heavily on the idea generation, which explains why losing manufacturing jobs can be coupled with a rising standard of living.
Did it ever occur to Taleb that the very non-renewable resources (oil, natural gas, uranium, water, phosphorus, copper, etc.) necessary for economic growth might not themselves scale in a way that facilitates the long-term continued "success" of globalization? In lieu of the olfactory delights of sniffing old French books as a mechanism of personal transcendence, Taleb should try smelling the "Dude, you're living on a finite planet" coffee.
The majority of Taleb's fury (if you can call it that) is directed toward economists who he believes are mesmerized -- via cognitive dissonance, confirmation errors, or the like -- by Gaussian distributions. These economists fantasize desperately about developing equations and other mathematics that will convince others in their field that they deserve a Nobel Prize while perpetuating and perhaps building upon theories that are already the stock of their trade. Taleb's main complaint is that these economists are delusionally attempting to conform (or fit) overly complex real world phenomena to a mathematical probability distribution or other model that is inadequate for the task, e.g., Gaussian distributions, which, according to Taleb, poorly take into account scalable outlier events. Oddly, Taleb dismisses in a few sentences recent enhancements to Gaussian distribution models to suggest that fractal distributions do a better although still imperfect job of characterizing the risk associated with scalable outlier events. In a footnote, at page 278, Taleb writes:
Granted, the Gaussian has been tinkered with, using such methods as complementary "jumps," stress testing, regime switching, or the elaborate methods known as GARCH, but while these methods represent a good effort, they fail to address the bell curve's fundamental flaws. Such methods are not scale-invariant. This, in my opinion, can explain the failures of sophisticated methods in real life as shown by the Makridakis competition.
Busted! Obviously others besides Taleb are capable of grasping the concept that models are just about all to some degree imperfect approximations of the complex systems they seek to emulate. So why does Taleb risk compounding the asserted crimes of precision quantitative models by instead promoting fractal distributions as a superior starting point? If god himself presented Taleb with a model that included the tiniest of simplifying assumptions, Taleb might well banish him to hell screeching, "Delusional reductionism-mongering charlatan! That's not good enough."
I have firmly believed, at least from the time I was a freshman in college, that economics is little more than a pseudo-science, especially when embarrassingly oversimplified attempts to use mathematics to model economic activity also become part of the discussion. Even matters of physics are usually difficult to fit to a mathematical model.
Models don't always work perfectly. Is this supposed to be a newsflash?
In the aftermath of savagely discredited recent models of risk, where far too many erroneous assumptions and inputs were utilized, Taleb may not be revolutionary but he still delivers a powerful admonition via his assertion that the danger of Black Swans is increasing due to the world (as a system) becoming ever more complex.
In complaining about how statisticians and philosophers alike allegedly fail to appreciate and react -- as Taleb believes they should -- to his various grievances, namely, "the problem of induction, Mediocristan, epistemic opacity, or the offensive assumption of the Gaussian", Taleb goes on to say: "Philosophers, the watchdogs of critical thinking, have duties beyond those of other professions." Maybe true, but it seems (at this point in the rant) that Taleb is more concerned with selling the self-gratifying notion that only he and the few people whom he worships "get it", while others in all manner of impressive specialized occupations are almost invariably susceptible to blind spots particular to the requirements, customs, etc. of their respective trades. The reader is blessed that Taleb didn't say, "With great critical thinking capacity comes great responsibility," otherwise you would experience the horror of watching a grown man dream out loud, for several paragraphs, about how it must feel when Talebian Spidey Senses commence to tingling.
At page 290, in talking about philosophers, Taleb comments: "They may also believe that nationality matters (they always stick 'French,' 'German,' or 'American' in front of a philosopher's name, as if this has something to do with anything he has to say)." Notwithstanding, Taleb chews up many pages describing his Eastern Mediterranean origins and experiences and, in perhaps his greatest recurring indulgence, almost giddily recounts the rarified air of his encounters with various European (usually explicitly identified as French) intellectuals, mathematicians and miscellaneous polymaths. I hope that this is an embedded joke (as I prefer not to delve into possible explanations involving biases [of the author] that he habitually, almost on cue, attempts to disavow).
Personal context clearly has influenced the development of Taleb's memes and proclivities. And now Taleb seeks to sell the idea (which I will paraphrase here) that a person's nationality, background, culture, environment, etc. should not be taken into consideration when discussing them and their work? Preposterous! Why am I making a big deal out of this? Taleb has suggested that philosophers should be viewed decoupled from context and from the very persons that they are. Taleb, of all people, should know better. To strip these humans of their personal stakes, motivations and/or influences, is exactly the sort of compartmentalized thinking (sometimes particularly egregious in highly specialized professions and disciplines) that Taleb himself cautions the reader to avoid. No wonder he doesn't care for Nietzsche!
Several times throughout the book, in what seem to be shameless attempts to cast himself as a regular (non-effete) American, Taleb tosses in out of place hackneyed insults directed toward the French (I assume jokingly), as if to provide a sniggering counterbalance to his extensive tedious prostrations at the feet of Benoît Mandelbrot, Henri Poincaré and others whose ideas he admires, ideas which (if I read him correctly) Taleb has admittedly adapted/repackaged as his own Black Swan narrative.
And finally, by way of residual nits: Taleb talks about "fuck you" money and, laughably, claims that no one predicted the fall of the Soviet Union. Hasn't he ever heard of Humphrey Bogart or Peter Drucker? My kingdom for a semi-culturally literate editor!
Maybe the most practical advice that can be taken from The Black Swan is Taleb's recommendation to shield 85-90% of your investments from risk in a hyperconservative fashion, while using the remainder to place a great many bets on the occurrence of Black Swan events with dramatic investment consequences. For example, he suggests Treasury Bills as a safe place to park the bulk of one's portfolio. (How about investing at least a small portion of this cash in mini bottles of scotch, or maybe even some hand tools, for Chrissakes?!? [I digress.])
As to the Black Swan bets, as Taleb points out, the beauty is that you don't need to be able to predict anything. You simply bet on a great variety of possible outcomes, both good and bad, in respect to investments. By way of example, in the area of pharmaceuticals, one might purchase options that would pay extraordinarily high returns should a cure for cancer be miraculously and unexpectedly discovered by a scientist working for at particular company. The same investor should also bet on the possibility of an extremely poor future for that same company. Who knows when the next wave of lawsuits is going to hit (remember Merck's Vioxx recall from a few years ago)?
In recasting the common sense idiom of not seeing the forest for the trees, Taleb warns that "people who worry about pennies instead of dollars can be dangerous to society." They probably present more so (in most instances) merely a clear and present danger to themselves and those depending upon them.
Another interesting bit of advice that Taleb gives is that people should be open to introductions, social encounters, circumstances, etc. that are more likely to create Black Swan opportunities. He explicitly states that people should, therefore, go to parties, never cancel an appointment with an important or well connected person, and live in an urban area where there is a greater concentration of people who might inspire an investor to place a new bet (on some heretofore unwagered upon consequence of a Black Swan event). Taleb also specifically mentions betting on the bets of venture capital providers, who are essentially gambling that the business of at least one of a pool of startup companies is going to explode in terms of sudden and unexpected growth into the next Google. And finally, Taleb notes that losses from such Black Swan bets can be insured against and/or mitigated through various automated trading mechanisms --common knowledge to competent investors, it would seem.
As to his writing style, Taleb seems more at ease with a straightforward approach. He is consistent in that he is not terribly rigorous in his presentation (which is entirely consistent with his thesis and might well be for the best). The outcome can scarcely be otherwise in attempting to address subject matter of such extraordinary breadth without the book becoming, in Taleb's words, "too f***ing long!"
To those on the prowl for symphonic wordsmithing or high-flying erudition: this is not a happy hunting ground. That said, Taleb, the skeptical empiricist, heir to Algazel's legacy in particular (whether he likes it, dislikes it, or both), intrigues as a perfectly likely as well as eccentric spokesman for the notion that we would be smarter by admitting that we can never know what it going to happen next. And further (in an unspoken honoring of hunter-gambler predecessors), we as investors, and in life in general, are encouraged to place a pointillistic shotgun blast of bets across a canvas of the unknown.
Thumbs up.