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Overrated: Nassim Nicholas Taleb

JAMIE WHYTEJanuary/February 2011

 

You cannot know the chance of very unlikely events by observing how often theyoccur. They do not occur often enough for that. But you can still sometimesknow their probability. For example, we know that the probability of 100

consecutive coin tosses landing heads is 1/2100, not because we have seenthis happen, but because we know that the probability of each toss landingheads is 1/2.

For many other improbable events, however, the matter is not so simple. Notonly are they too rare to observe their long-run frequency, but we do notunderstand their underlying causes well enough. For example, because thecauses of weather and of economic events are so varied and complicated in

their interactions, meteorology and economics remain inexact sciences,unable to tell us the chances of unlikely, extreme events.

 And because we humans are inclined to certain errors of reasoning, such asseeing patterns where there are none and underestimating the chance of things we have not previously seen, we get shafted by unlikely events moreoften than is strictly necessary.

This is a short version of The Black Swan, the 2007 best-seller by NassimNicholas Taleb, a (now) 50-year-old Lebanese former investment banker. HisFooled by Randomness, published in 2001, explored similar themes. But it didnot enjoy the same success because its timing was not as good: Black Swanwas published during a financial crisis that Taleb had predicted.

He was quickly propelled to stardom. Bryan Appleyard described him in theSunday Times as "the hottest thinker in the world". He has since added a postat Oxford University's Said Business School to his position at the PolytechnicInstitute of New York University, and he is in great demand on the speakingcircuit.

It is ironic that Taleb should be credited with genius on account of thecoincidence of Black Swan's publication with a financial crisis he hadpredicted. It displays exactly the kind of erroneous thinking that he complainsof. If the financial crisis were an unlikely "black swan" event of the kind thatTaleb discusses, then he could not have known its probability.

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Philo sophy The Bed o f P rocrustes The Black Swan

Anonymous

November 9th,201410:11 PM

"If the financial crisis were an unlikely "black

swa n" event of the kind that Taleb discusse s,then he could not have known its probability."What? You can still calculate the probability, ablack swan is a multi-standard deviation event.

Author is o bviously not mathe matically inclined,not understands statistics very well.

Daryll

April 23rd, 20144:04 PM

Idiotic. Even if you have tossed the coin 100times the probability of the next throw is 1/2

even if the previous 100 were all heads, andthat's not accounting for dropping the coindown a drain or suffering a sudden aneurismas a result of living in your left brain instead of 

the messy dynamic real world. - Doing somemaths about wha t's likely to happen ne xt doesnot tell you what will happen next. The morewe build upon blocks of false certainty based

on conceptual models the more a collapse isinevitable - the point of the book to somedegree is that the collapse ws not a blackswan - it was entirely predictable because we

live in a world full of people like you lot -conditioned by Acadaemia you make the worldstatic, certain and simple to fit into yourreductive categories of comple equivalence. I

think you missed the point spe ctacularly.

Marty Brandon

February 23rd,20143:02 PM

I'd just finished the first two chapters of theThe Black Swan, and had a growing feeling of nauseating postmodernism. Thanks to this

article and the video link posted by Fabian, Ibelieve I can skip the rest of the book. Thankyou both for sa ving me a bit of time.

Levi

January 26th,201411:01 PM

Uh, why is Taleb's distinction between risk anduncertainty being attributed to him? University

of Chicago economist Frank Knight worked allof this out, and quite famously, back in the1920's.

Pallab Basu

October 31st,20136:10 AM

Whyte defending science is like pope defending

Islam. Whyte does not have a clue on howscientific method wo rks and w hy Taleb isagainst economics. It is very common forscientists to fall into "action bias", where

people overdo things to think they areimproving situation, when in reality nothing ischaning. However with all its error and biases,modern science is a self-correcting data-driven

mechine, which improves over time. Aneconomists can hardly say the same for hissubject.

 jc

October 25th,201312:10 PM

I have read both the bo ok by Taleb and some

of the popular writings of Jamie Whyte. I amconnsiderab ly more impressed by Taleb tha nWhyte, though can undertsand why somemight find Taleb's s tyle not to the ir tastes. He

uses w ide-ranging analogies in a popular book,some of which can be misconstrued or areobscure. However,Taleb's argument isconsiderably more subtle than Jamie Whyte

seems to appreciate. It is partly spelled out inThe Black Swan but more explicit in Fooled byRandomness. The idea of a 'black swan' is anevent which comes out of nowhere and proves

that our previous model of the world wa s false.That their should be such things is a severechallenge to the methods used in financialmarkets, where practitioners use statistical

models of financial behaviour and estimate theparameters based on past observations. Thisis a perfectly valid app roach, argue s Taleb, if whatever is be ing nmodelled follows a p rocess

that can be approximated to the Normaldistribution. A great many phenomena can butTaleb argues, extremely convincingly thatothers cannot. Crucially, it is not possible to

determine the parameters of the distributionhowever many observations one ta kes as onesin le 'black swan' chan es everythin . Taleb

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Taleb's central hypothesis in Black Swan  is right. But it is simple and worthonly a chapter rather than an entire book. Taleb inflates its significance with anabsurdly combative and grandiose writing style. It is Taleb versus the corruptfools of the financial establishment; Taleb versus the false mathematicalrigour of the academy; Taleb returning us to the wisdom of the ages.

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then explains why such distributions exist, themathematics of them and how they relate to

the real world. It seems clear to me that JamieWhyte has no appreciation of this-hence hisreview. As an aside, I have read some of Whytes popular articles where he touts the

merits of a philosophical approach to real worldproblems. I was impressed as they see med anexcellent parody of eroneous reasoning.After awhile, it dawned on me that,far from being

works of comedy, Whyte was for real. Reviewsare o f course subje ctive, but I feel Taleb ismore worthy of detaile reading.

Mark Tsomondo

April 24th, 201310:04 PM

Taleb is courage ously onto "something" tha t

eludes, and perhaps now, offends, guruprognostications and prescriptions. He warnsus not to be suckers for naive economicrationalizations, including new high-sounding

sophistry. In my view, Taleb is a rare thought-democrat, a naked philosophe r, when it comesto the appreciation of diverse and often"unpublishable" native knowledge systems,

including Brooklyn Fat Tony's wisdom. Notmany Geologists that I have met arecomfortable with the idea that over 80% of what became the largest gold mines in

Zimbabwe were founded on sites of pre-colonial mining by "native" people, who, un-enamoured by geological theory, went aboutthe practice of discovering and mining gold for

trade to fend o ff hunger. Taleb wou ldacknowledge this pay-off of exchanging goldfor food.

Fabian

November 26th,20124:11 PM

I wholeheartedly agree with the author's

sentiment. Just listen to Taleb's 5 minutestream of bullshit at the said conference inM e x i c o : http://www.youtube.com/watch?v=H11t5zBd3fU - it is pa inful...

nrt1

November 25th,201211:11 AM

For Jamie Whyte to take someone to task forvanity really is Black Kettle rather than BlackSwan

Anonymous

November 24th,20127:11 PM

Taleb does not argue that the financial crisiswas a black swa n. He maintains it was entirely

predictable (just a matter of when, not if). Butof course, he's arrogant. Let's count amanagement consultant to provide insight;that's surely a genius move.

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