EL CISNE NEGRO
by Nassim Nicholas Taleb
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41 + 239 in other languages
RobbinRobbin wrote a review
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Kin YipKin Yip wrote a review
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Spoiler Alert
The 2nd edition actually contains a 75-page postscript essay that the 1st edition doesn't have.

I came to read this book very much because I read Daniel Kahneman's "Thinking, Fast and Slow" as Kahneman has mentioned this book very positively. Interestingly, Kahneman's works have been mentioned multiple times such as "anchoring" in p. 158. Compared to a few other Nobel economic laureates, the author obviously has a good relationship with Kahneman (esp. clear after reading the postscript). Overall, I find this book more difficult to read than the above-mentioned one of Kahneman's. Kahneman has tried a bit to make his content easy to be understood by laymen; whereas this author, with difficult quotes and technical jargons, has made it unnecessarily (in my opinion) difficult for laymen to comprehend. There are quite a few places that the author encourages the readers to skip this or that section or even chapter.

I guess the central message is that in Extremistan (ie. Black Swan), there is no reliable probability distribution and rare event can't be predicted. Though we may prepare ourselves in the case of positive Black Swan, we can only try to avoid/mitigate the negative Black Swan. The author strongly criticizes the use of Gaussian distributions to describe real-life economics and criticize any economic models trying to describe real-life situations with Gaussian distributions.

Another interesting/main point (to me) is the narrative fallacy. We think we understand much more than what we really do. When we narrate things, we tend to put the sequences in some logical ways but the reasons we give may be just artificial and very likely oversimplified. Things may be much more complicated and we probably don't really understand the matter the way that we think we do.

The author praises K. Popper a lot, certainly valuing him way more than L. Wittgenstein (eg. p. 291). The tone towards the end of the 1st edition and in the postscript of the 2nd edition seems more direct or even venomous towards some Nobel economic scholars such as M. Scholes and R. C. Merton (eg. in p. 341 calling them as whom God created to illustrate about Black Swan blindness) and powerful people such as "abject Robert Rubin" (p. 342). Also in the postscript, I see how much the author has regarded himself, esp. on p. 347 (4th line), he wrote "The Black Swan is the very first attempt (that I know of) in the history of thought to provide a map of where we get hurt by what we don't know ...". It's refreshing and certainly rare to find people daring to insult Nobel laureates.

I think I probably understand the main points that the author has tried to get across. Probably the author feels that he needs to rebut what his opponents or detractors have said and so a main fraction of the book may be mentally targeted towards those people (but would they listen ?). Otherwise, he probably doesn't need 400 pages. Also, like other people from the Middle/Near East, the author has mentioned the least about the Far East (compared to Europe and America).

Some suspicious typos/errors: p. 73 (11th line): "your intension to injure" should be "your intention to injure". p. 107 (14th line), I tend to think that the brackets in "both profoundly flawed (and a reasonable inference)" shouldn't be there. p. 209 (9th line under "d."), I'm not sure why the brackets are in "...reckless but (hidden) risk taking". p. 213 (8th line): "Terso" in Italian should really be "Terzo". p. 219 (lines 6-7), "atractable versions" should probably be "a tractable version" or "tractable versions". p. 383 under "Epilogism", the "(" on the 2nd line of the italicized paragraph is missing a ")". p. 343 (7th line): "objeect" should be "object".
Martingale HillMartingale Hill wrote a review
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Trying to connect the "dots" in this Taleb's work
Here are some of the inconsistencies inside the book (the Penguin revised edition):-
1. Taleb put up a quiz to the graduate students about the odds of exceeding one standard deviation under the fat tail compared to the Gaussian (p. 357). His ‘right’ answer is lower. In this sense, the odds of crash in the world of finance under any fat tail distribution should be even rarer than Gaussian; while the Gaussian already predicted that the occurrence of crash should have taken place every several billion lifetimes of the universe (p. 276). It does not make sense since the crisis happened almost every 10 years, from 1987 crash to 1997-8 Russian debt crisis and Asian financial turmoil, as well as 2008-9 Global financial crisis. Taleb seems to confuse the vanishingly small ‘contributions’ of outliers to the overall Gaussian distribution (which should be interpreted as ‘probability’ or ‘odds’), with the ‘impact’ of the rare event to the ‘total’ (which should be the expectation value.) (p. 357) Taleb explanation of the lower odds under fat tail because of its greater impact seems to be a bit tricky, as we should compare both distributions with the same amount of losses. To me, it is rather counter-intuitive as under any chosen tail the area under Gaussian should be lower than the fat-tail, not the reverse.
2. Taleb tried hard to snub Messrs of Blacks, Scholes and Merton about their Nobel-crowned formula by saying they merely made it “more acceptable” rather than they “invented” it, as Ed Thorp was an earlier person to mention it (p. 279). But it is also the author himself to say “it is those who derive consequences and seize the importance of the ideas, seeing their real value, who win the day.” His “godfather” B. Mandelbrot was not the first person to invent the pieces but to “connect the dots”. Charles Darwin was also not the first person to “invent” the survival of the fittest. (p. 256) Therefore, it is not a valid denigration of BSM since it goes against his own words that there is nothing wrong to “dig out predecessors’ work to back up their own claims”. Also, when we “connect the dots”, how do we avoid the narrative fallacy as the historians?
3. How do Taleb know he survives because “school of empirical medicine” wins over scholastics school? This statement also suffers from reverse engineering. (Water puddle problem)
4. One of the main themes of the book is “We just can’t predict”, while it is the human nature to plan or predict to satisfy one’s own psychological needs. Thus Taleb suggested us “Just be a fool in the right places” (p. 203), instead of total avoidance of planning/forecasting.
a. But what do we do with Mandelbrotian modeling? We can’t rely on them for any precision when it comes to forecasting, as long as their function is merely to show us the locations of Black Swan, or to make Black Swan grey. Taleb owed us a little more light on what to do with a right map if Mandelbrotian happens to be one, so long as we are pretty sure the Gaussian is wrong in Extremistan finance world.
b. When it comes to “small” things, we are better to “be human”. When it comes to our possessions, career or train schedule, all of which should be no “bigger” things in Taleb’s mind, we are better off to practice stoicism as “missing a train is painless”, which itself is rather inhumane in my opinion as it takes extra energy not to care. Paradox arises here.
5. Taleb proposed the respect for Mother Nature and “things that have worked for a long time are preferable” since “they are more likely to have reached their ergodic states” (p. 371). But it is also the same Taleb who developed the main theme of the book – the Black Swan with the “problem of induction” that “No amount of observations of white swans can allow the inference that all swans are white” (From Taleb’s first book “Fooled by Randomness”). Our mere thousand years civilization with records of observations of Mother Nature may mislead us to see “White Swans” as “ergodic states”. Our blind belief of representation of Mother Nature may also lead us to “problem of induction”.