https://www.smbc-comics.com/comic/black-swan

Overall, I’m sorely disappointed by the first Nassim Taleb book I’ve read. The major points made by the book are insightful, but not very cohesive. Interesting examples and anecdotes are interspersed through the book, but most of it feels repetitive and mundane. The only reason I did not stop halfway through is due to the book’s pop culture status, and Taleb’s overall social clout. In retrospect, I believe that some sort of book summary service (i.e. Blinkst) would have served sufficiently well as a replacement for reading this whole book.

With that said, there are still a few interesting points I wanted to recollect
.

One of the most profound quotes from the book was: “History and societies do not crawl. They make jumps. They go from fracture to fracture, with a few vibrations in between. Yet we (and historians) like to believe in the predictable, small incremental progression.” I completely agree and believe this couldn’t be closer to the truth, especially during COVID time; ironically he mentioned the impact pandemics could have. Most importantly, I love how much this quote relates to my personal and work life. Day-to-day changes accumulate, but only large jumps (a full weekend of work, a move, a job switch, etc
) make profound and long-lasting changes in my life. This relates to my single favorite piece of “life advice” he provided, which is that extreme short-term stress is much more effective that low long-term stress.

Nassim’s background somewhat reminded me of the first half of Ray Dalio’s Principles. He started as a quant right before the 1987 crash and did well financially. Amusingly, he would tell people he’s a limousine driver to avoid seeming rich, and would frequently tip taxi drivers $100 bills because “money became easy”. I related to his points of avoiding mainstream news or having any faith in the efficient market hypothesis. If anyone is reading this, do you remember how the market went down and then back up on the same pieces of news during the 2016 election?

The concepts of Mediocristan and Extremistan introduced in the book were interesting but reiterated WAY too many times
 In Mediocristan, people don’t take risks, progress is not made, and everyone lives by the status quo. In contract, in Extremistan, people see things differently, take risks, make ambitious goals, and lead to change. Formalizing and stating these terms is nice, but they’re quite intuitive and do not need to be re-explained from a hundred different perspectives.

Taleb went into extensive discussion about how experts have a reckless prediction problem, and related it to how biased humans are at estimation. Not many key takeaways, but a few interesting points. Firstly, according to Taleb, almost all economics forecasts are wrong. For example, no one could predict the 6% to 1% change in interest rates in Tokyo in 2000. Another example includes how none of the large American banks were able to predict they would lose their entire investments in South & Central America in the summer of 1992. He also brought up a study of how students who were asked to estimate how long a project would take would were all wrong: optimistic students said 26 days, pessimistic ones said 47, but on average, it took 56 days.

I found his brief discussion of Benoit Mandelbrot very interesting. Mandelbrot was a key individual in linking randomness to geometry and responsible for defining the “seven states of randomness”, which is a fundamental concept of risk analysis, fractals and probability theory. While Mandelbrot was a physicist, he was also very drawn to economics. When asked why that is, he said that it is due to the abundance of data. Even though no one objects to making money, it made me realize why so many other mathematically inclined people (i.e. Ed Thorpe) tend towards the finance industry. It is not just the allure of making money, but also the large amounts of data you can use to build models, do analyses and make predictions.

Interesting concepts:

  • Anchoring: A form of cognitive bias where an initial piece of information heavily affects an individual’s future decision making.

  • Pascal’s wager: A philosophical argument which posits that humans bet with their lives whether god exists or not.

  • Packaging: The process of telling people “this is where your idea works well” instead of “this is where your idea doesn’t work”.

  • Kolmogorov theory of turbulence: The idea that a turbulent flow is composed of small eddies.

Interesting points:

  • All gamblers have beginner’s luck because they wouldn’t have become gamblers if they weren’t lucky initially.

  • Seneca, a well known stoic, was ready to lose everything every day. Supposedly, he calmly committed suicide when ordered to do so by Emperor Nero.

  • Some things in nature (i.e. human weight and height) follow Gaussian distributions really well. Others, such as human wealth, aren’t even close

  • Luck is underrated in real life and overrated in games of chance. He talked about how two of the biggest financial loses a casino had were due to improperly filed tax forms, and an insurance claim related to a lion attack during a show, neither of which is related to gambling at all.

Interesting quotes:

  • “Everyone wants recognition, but we only glorify those who are loud.” - Taleb

  • “One death is a tragedy but a million is a statistic.” - Stalin

  • “People who worry about pennies instead of dollars are dangerous.” - Taleb