Black Swan Theory and the art of doing nothing


A book I have just added to my Amazon wishlist is Nassim Nicholas Taleb‘s The Black Swan: The Impact of the Highly Improbable. Here’s the synopsis from Wikipedia:

The Black Swan Theory or “Theory of Black Swan Events” was developed by Nassim Nicholas Taleb to explain 1) the disproportionate role of high-impact, hard-to-predict, and rare events that are beyond the realm of normal expectations in history, science, finance and technology, 2) the non-computability of the probability of the consequential rare events using scientific methods (owing to their very nature of small probabilities) and 3) the psychological biases that make people individually and collectively blind to uncertainty and unaware of the massive role of the rare event in historical affairs

…and in the New York Times, Taleb himself summarises:

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 explains 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.

In a recent article for the Sunday Times Taleb draws some logical conclusions from the theory in relation to the financial crisis and how we managed to get here. He suggests that humanity currently has a psychological hang up about accepting advice that sounds negative. For him success should consist of avoiding losses rather than deriving profits. How do you live long? By avoiding death.

Linked to the path to success we are compelled to follow by all the self help books on the bookshop shelves is the preference that we have to do something rather than nothing, even (as he states in the article) when doing something is harmful.

Something my father would like is his assumption that the improvements in life expetency have come about not by the “random” discovery of antibiotics, but more by the improvements in sanitation, or (as my father has said) “the distance man has put between him and his excreta“!

Taleb also teaches us a new term: iatrogenic – harm caused by the healer. Historically and because of progress doctors spent a long time killing patients as doing nothing (or “therapeutic nihilism”) was deemed unscientific.

In the Times article Taleb concludes that the regulators are the iatrogenics of the financial system and that not admitting the limits of human understanding but enforcing more regulation is a negative step that could be avoided by an understanding and admittance of what we learn from this theory.

One warning, from an Amazon review about the book if you are also interested:

Content: makes insightful points on limitations of our knowledge, human temptation to identify false trends and narratives, follow herd mentality, blindly follow ‘experts’, and so forth. He calls this ‘skeptical empiricism’.

PS Not to be confused with Occam’s Razor, and reminiscent of a possible new Cubeworks strap line: Making the complicated. Simple. …what do you think?

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