ECO 255, Fall 2020

PS 5: The Black Swan

Instructions for this topic:

 Read chapters 8-9 for class on 10/2

 Read chapters 11-14 for class on 10/5
 Read “The Black Swan of Cairo” for class on 10/6
 Read chapters 15-19 and Postscript essays VI, VII, VIII on pages 361-376 for
class on 10/8

Be sure to see the links on Moodle for guiding questions to consider as you read for each
class period. You should take notes on each question and come to class ready to discuss
them.

Part 1: Review; not to be submitted

(1) For chapters 3-13, summarize each chapter, in one or two sentences, in a way that
someone who has not read the book would understand.

(2) Briefly define, in a sentence or two, the following concepts that Taleb refers to:
a. Platonicity
b. Ludic fallacy
c. Narrative fallacy
d. Silent evidence
e. Retrospective distortion

Part 2: Answer all questions; due at 10:00PM on Friday, 10/9 on Moodle

**For each question, limit your response to 150 words or less.**

(1) Go back to the “triplet of opacity” described on page 8. What forces, described
throughout the book, contribute to each of the three separate components?

(2) Review Taleb’s “one idea” that he writes in italics on page 131. In your own words,
describe how the lessons from the earlier sections of the book support this claim

(3) Why would Taleb caution is to be skeptical of the argument that there is an equity
premium puzzle? What factors in the book suggest that the preference for bonds over
stocks, despite the historical difference in returns, is not an irrational tendency?

(4) What do you think that Taleb means when he says that, “probability is a liberal art”?

(5) Summarize Taleb’s advice for dealing with “positive accidents” in chapter 13. How
does this advice extend, and/or follow from, the lessons that he provides in chapters 7 and
11?
(7) Reflect openly and honestly on what you consider to be the most important takeaway
lesson or lessons from The Black Swan. Has the book changed your thinking? Has it left
you with impressions that you think you will carry forward beyond this course? (Please
do not complete this question until after our discussion on 10/8.)