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Black Swan

Black Swan



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Published by Tom Saunter

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Published by: Tom Saunter on Mar 28, 2009
Copyright:Attribution Non-commercial


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Category:BUSINESS/ CONSUMERBEHAVIOURAuthor: Nassim Nicholas TalebPublished:
Penguin Books, 2008
Reviewed: Sean Healy, 31 January 2009
Core Thought/ Key themes
 The past blinds us to the threats and possibilities of the future– we live in ‘Extremistan’ prone to randomness and BlackSwans but think like we are permanently in Mediocristan apredictable world which we are not
Our predictive thinking and models (econometrics single out)are woefully inadequate because they fail to alert us tounlikely but massively impactful events: Black Swans
 This is because most theory of predictability and risk focus theon averages and fails to significantly focus the extremities :bell curves are evil
Very few people pursue practical bottom up thinking andstudy individual cases on their own merit in detail
Nassim believes that fractals (recurring shapes/behaviours)better explain probablity
Our strategies for dealing with risk are generally flawed: weshould make few very major safe bets and take lots and lots of small risks to learn from
Where can it add value to what we do for our clients
It reminds us not to spend our lives optimising ourselves into asub-optimal situation: some of the accountability tools we relyupon do not come up with the next great leap forward
It promotes scepticism about assumptions that are not bornout by empirical proof: challenge the so called experts
It reminds us not just to look at the norms within any audienceor market but understand as much as possible about the
behaviours and situations at the extremes as they maybecome the norm
It reminds us of the possibility of scalability rather thanpredictable diminishing returns in some situations 
Most useful quotes and page references
P40 ‘Consider a turkey that is fed every day. Everysingle day will firm up the birds belief that the generalrule of life is to be fed every day by friendly membersof the human race…………… On the afternoon of theWednesday before Thanksgiving somethingunexpected will happen to that turkey. It will have arevision of belief.’
P 208 see footnote on positive Black Swan businesses(e.g biotech new discovery) versus negative 9e.g.banking much less profitable than it appears)
P 276 see the graph that demonstrates the profoundeffects of extreme trading days (seen as anomalies) inthe return of the US Stock Market
P 284 see summary of Taleb’s approach (open torandomness) versus orthodoxy of bell curvepredictability
P 296 ‘I worry more about the promising stock market,particularly in safe blue chip stocks than I do aboutspeculative ventures – the former present invisiblerisks, the latter offer no surprises since you know howvolatile they are and you can limit your downside byinvesting smaller amounts.”
 Thoughts from The Reader:One really useful thing that I’ve taken from this book has beenthinking about the way we manage risk and test and learn newapproaches for our clients.We bin good stuff to soon and don’t manage to new enoughinnovation Taleb tells us to bet big on favourites and constantly back a numberof real outsiders with small amounts. Instead we over invest in themediocre.
Here is a chart that explains what I mean.Maximise the number of As and investment in themLook to improve your Bs and put them in the A camp: bin the onesyou can’t improveConstantly test out Cs (risks) to find new Bs.And so a cycle of continuous improvement rolls on.
Other reviews (attachments)
Chris Anderson is editor-in-chief of 
magazine and theauthor of 
 Four hundred years ago, Francis Bacon warned that our minds are wiredto deceive us. "Beware the fallacies into which undisciplined thinkers mosteasily fall--they are the real distorting prisms of human nature." Chief among them: "Assuming more order than exists in chaotic nature." Nowconsider the typical stock market report: "Today investors bid shares downout of concern over Iranian oil production." Sigh. We're still doing it.Our brains are wired for narrative, not statistical uncertainty. And so wetell ourselves simple stories to explain complex thing we don't--and, mostimportantly, can't--know. The truth is that we have no idea why stockmarkets go up or down on any given day, and whatever reason we give issure to be grossly simplified, if not flat out wrong.Nassim Nicholas Taleb first made this argument in
Fooled by Randomness,

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