The Black Swan - The Impact of the Highly Improbable

by Nassim Nicholas Taleb

                                    
   

It may seem strange for futurists to (favourably) review a book about the fact that we cannot forecast/predict the future, but when it comes to matters that are in any way complex and involve the free will of a number of individuals, the impossibility of accurate prediction is exactly my view.

Many methods of forecasting involve looking at trends or historical patterns. Aside from inaccuracies caused by the fact that we interpret history through a need for retrospective certainty about what happened, the best story in this book illustrates the fallacy of relying on such information. The story is about the Thanksgiving (or in Australia, Christmas) turkey (p40). Every day of the turkey’s existence until the fateful day would give the turkey the view that humans are benevolent creatures who bring food. Extrapolating the dataset gives the view of a long, well fed life. How many times have we all operated under such a fallacy?

Another amazing story is that if people spin a spinning wheel like the ones that you see on a game show, then their answer to the next question is influenced by the result of the spin of the wheel, which was completely random. For example, if you get a low number on the spin of the wheel you are more likely to give a low answer to a question that requires a number as the answer. If you get a high number from the spin of the wheel you are more likely to give a high number as the answer (p158). How scary is that – when we think that we think rationally!

A third illustration is that if asked to predict the motion of a billiard ball on a billiard table of a known rolling resistance we can easily compute that for the first hit (p178). If we need a prediction for the ninth impact, to be accurate you need to add in the calculation of the gravitational pull of anyone standing next to the table. To calculate the motion after the 56th impact, you need to add in the state of every particle in the universe.

As the author would say, these stories are merely illustrative and human behaviour is not ruled by physics alone. However, we need to think that when we add in all the variations in behaviour that come from involving hundreds or millions of people, the complexity is even larger. Hence the view that we cannot predict the future in such situations, even though we believe that we can and seem to instinctively rely on such predictions.

As the author’s background is in investment and trading the ideas and views are often put in this context. He worries that many commercial organisations that are making “good returns” are in fact doing so because they have created a business model or investment strategy that ignores the “black swan” or big negative event. Therefore they appear to be making good returns but in the context of long term risk this is an illusion. Lots of people are being paid bonuses and being hired for huge salaries on this basis.

The majority of the book is about convincing the reader that we cannot predict the future, and that large “black swan” events will affect the future more than we can ever know. In some ways this could be seen as relatively useless – where does it get us in the real world? In Chapter 13 (p201) the author addresses some of these issues – I will not spoil the story (it would be like revealing who murdered the butler) but there are ways that we can deal with what is real rather than continuing of operate in a fantasy constructed by our own ideas and how we think.

From about page 87-130 the arguments get a bit repetitive and in my view the book could have been considerably shortened and still achieved its aim. However, this is a minor criticism. Anyone who has an interest in strategy, planning, critical thinking, or thinking in any way about the future, should read and re-read this book and absorb its lessons.

A cautionary note – when my brother handed me this book he said it was a must read for every futurist but that the author would be a pain in real life. I do not know if that is the case, but certainly the book will irritate people tied to a certain world view because the author is meticulous and detailed in his arguments and point of view to the level of pedantry. If you are irritated by these issues I would suggest you are the very person that should read it more than once.