Did the people who ran Lehman,Fannie,Freddie,and AIG really understand the risk? Are the tails of the bell curve much bigger than their risk models suggested? Are the tails on everything much bigger than people imagine? He's not your typical thinker.But,Nassim Taleb asks questions few will even dare.What if ten standard deviation moves from the mean can happen? Here's a guy that predicted the financial crash.You'll want to read the book,it will open your eyes.Here's a review.Here's the first chapter of the book.Here's Nassim Taleb's basic introduction:
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. The sighting of the first black swan might have been an interesting surprise for a few ornithologists (and others extremely concerned with the coloring of birds), but that is not where the significance of the story lies. It illustrates a severe limitation to our learning from observations or experience and the fragility of our knowledge. One single observation can invalidate a general statement derived from millennia of confirmatory sightings of millions of white swans. All you need is one single (and, I am told, quite ugly) black bird.Something to think about.
I push one step beyond this philosophical-logical question into an empirical reality, and one that has obsessed me since childhood. What we call here a Black Swan (and capitalize it) is an event with the following three attributes.
First, it is an outlier, as it lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility. Second, it carries an extreme impact. Third, in spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable.
I stop and summarize the triplet: rarity, extreme impact, and retrospective (though not prospective) predictability. A small number of Black Swans explain almost everything in our world, from the success of ideas and religions, to the dynamics of historical events, to elements of our own personal lives.
