The Black Swan:The Impact of the Highly Improbable

A good person is as rare as a black swan (rara avis in terris nigroque simillima cygno) -Latin poet Juvenal

The Black Swan:The Impact of the Highly Improbable

This book of Nassim Nicholas Taleb is about how most important events are unpredictable and rare,and how we co-relate these events with past things to make a sense out of it.The theory he used is called “BLACK SWAN THEORY” .It spent seventeen weeks on the New York Times Bestseller list and was translated into twenty-seven languages

The “Black Swan Theory“ refers only to unexpected events of large magnitude and consequence and their dominant role in history. Such events are considered extreme outliers.Taleb regards almost all major scientific discoveries, historical events, and artistic accomplishments as “black swans” — undirected and unpredicted. He gives the rise of the Internet, the personal computer, World War I, and the September 11, 2001 attacks as examples of Black Swan Events.

He categorized a event as Black Swan Event:

1. The event is a surprise (to the observer).
2. The event has a major impact.
3. After the fact, the event is rationalized by hindsight, as if it had been expected

Taleb enumerates ten principles for building systems that are robust to Black Swan Events:

1. What is fragile should break early while it is still small. Nothing should ever become too big to fail.
2. No socialization of losses and privatization of gains.
3. People who were driving a school bus blindfolded (and crashed it) should never be given a new bus.
4. Do not let someone making an “incentive” bonus manage a nuclear plant – or your financial risks.
5. Counter-balance complexity with simplicity.
6. Do not give children sticks of dynamite, even if they come with a warning.
7. Only Ponzi schemes should depend on confidence. Governments should never need to “restore confidence”.
8. Do not give an addict more drugs if he has withdrawal pains.
9. Citizens should not depend on financial assets or fallible “expert” advice for their retirement.
10. Make an omelette with the broken egg

This book has a very different approach to worldly matters and I find myself supporting it because I also believe in theory of uncertainty.