July 17, 2008 Vol. 1, Issue 6
What can we learn about risk from the success of Harry Potter and the stock market crash of 1929?
Highly improbable events shape human history. “Before the discovery of Australia, people in the Old World were convinced that all swans were white, an unassailable belief as it seemed completely confirmed by empirical evidence,” writes Nassim Nicholas Taleb in the first sentence of The Black Swan: The Impact of the Highly Improbable. The eventual sighting of a black swan “illustrates a severe limitation to our learning from observations or experience and the fragility of our knowledge.”
Taleb uses the Black Swan as his metaphor for any seemingly unlikely event — the success of Harry Potter, a financial meltdown, the preeminence of the Internet in daily life — that shatters previously held conventional wisdom about how the world works. He examines the habits of thought that lead to critical mistakes in thinking. He notes, for example, a psychology study that asked people to analyze the numerical sequence 2-4-6. Researchers found that subjects devised their own rule to explain the sequence and then sought evidence to corroborate their self-invented rules, rather than trying to disprove them.
Taleb weaves his own autobiography into the book, recounting his fascination with the Black Swan problem as he moved through his career as a financial trader. He systematically takes apart the fallacies, inconsistencies, and biases in everyday thinking that lead to “Black Swan blindness,” and offers concrete suggestions for managing uncertainty. For people who deal with risk every day, his analyses and conclusions are provocative and unsettling.
Read the first chapter of The Black Swan.
Read ASK Magazine Editor-in-Chief Larry Prusak’s discussion of The Black Swan.
