BLACK SWAN TALEB PDF

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was. The astonishing success of Google was a black swan; so was 9/ For Nassim Nicholas. Taleb, black swans underlie almost everything about our world . The Roots of Unfairness: the Black. Swan in Arts and Literature. Nassim Nicholas Taleb1. 2nd. Draft, November Literary Reseach/Recherche Litteraire. PDF | On Feb 1, , Gene Callahan and others published Nassim Nassim Nicholas Taleb'sThe Black Swan is a fascinating but deeply flawed book.


Black Swan Taleb Pdf

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"Black swans" are highly consequential but unlikely events that are easily Like everyone else, says Taleb, these so-called “experts” fail to appreciate “black. Second, I want to thank Rotchy Barker, who was my first trading mentor. He took me into his Page How the Turtle W. (italics denote quotes from Taleb, boldface denotes my own emphasis). The phrase “Black Swan” (arising earlier in the different context of.

Taleb notes that in the 19th century, John Stuart Mill used the black swan logical fallacy as a new term to identify falsification.

Other books: BLACK BOOK 2006

His book The Black Swan extended the metaphor to events outside of financial markets. 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 , the dissolution of the Soviet Union , and the September 11, attacks as examples of black swan events. First, it is an outlier, as it lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility.

Second, it carries an extreme 'impact'. Third, in spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable.

I stop and summarize the triplet: rarity, extreme 'impact', and retrospective though not prospective predictability. A small number of Black Swans explains almost everything in our world, from the success of ideas and religions, to the dynamics of historical events, to elements of our own personal lives.

Based on the author's criteria: The event is a surprise to the observer. The event has a major effect. After the first recorded instance of the event, it is rationalized by hindsight, as if it could have been expected; that is, the relevant data were available but unaccounted for in risk mitigation programs.

The same is true for the personal perception by individuals. Coping with[ edit ] The practical aim of Taleb's book is not to attempt to predict events which are unpredictable, but to build robustness against negative events while still exploiting positive events. Taleb contends that banks and trading firms are very vulnerable to hazardous black swan events and are exposed to unpredictable losses.

On the subject of business, and quantitative finance in particular, Taleb critiques the widespread use of the normal distribution model employed in financial engineering , calling it a Great Intellectual Fraud. Taleb elaborates the robustness concept as a central topic of his later book, Antifragile: Things That Gain From Disorder.

For example, what may be a black swan surprise for a turkey is not a black swan surprise to its butcher; hence the objective should be to "avoid being the turkey" by identifying areas of vulnerability in order to "turn the Black Swans white".

These limitations are twofold: philosophical mathematical and empirical human known epistemic biases. The philosophical problem is about the decrease in knowledge when it comes to rare events as these are not visible in past samples and therefore require a strong a priori , or an extrapolating theory; accordingly predictions of events depend more and more on theories when their probability is small. However, extreme events usually occur and have significant impacts.

Our tendency to ignore them comes from the fact that people tend to underestimate their ignorance. There is much that we do not know, but since feeling ignorant is something that does not make us feel good about ourselves, we tend to downplay this characteristic of ours.

We create stories where they do not exist. Human knowledge is constantly growing and evolving, and the dogmatic approach we tend to take makes no sense. We cannot be sure of our beliefs, for they make us blind to concepts that are outside what we believe to be true.

Black swans are the events that cause vast cognitive transformations, whether minor or enormous, such as the destruction of a sector in the stock market or a political crisis. The only way to be aware of these impacts is information. The more ignorant you are, the more likely you are to be surprised by a swan. The more informed you are, the less likely you will be hit. A Black Swan can transform the whole modern understanding of science, impacting philosophy, theology, and physics.

In the 15th century, when Nicolaus Copernicus proposed that the earth was not the center of the universe, the consequences were immense, at all levels. He challenged religion yes, the Catholic church suffered major impacts , but also paved the way for a cultural change in society and science. To better understand the impact of the unlikely, Nassim Taleb divides human knowledge into two main areas of randomness, separating the two major groups of unlikely effects in our lives.

The Black Swan Summary

By dividing the improbable into two large groups, it becomes easier to understand how it deceives us and thus proves our inability to make predictions. The first of them is called by Taleb of Mediochristian, describing a land where averages are the rule. In Mediochristian our sampling of information and data available is very large, and no single fact will change the way the model works.

The data in this context is not scalable, as it has defined a minimum and a maximum limit. Examples of Mediochristian information are, for example, physical characteristics such as height and body weight, and even IQ.

Since the properties of such non-scalable information are certainly limited, it is possible to make relatively accurate predictions about the means.

In Extremistan, the information is so disproportionate that a single observation can dramatically impact our observations and mislead our ability to make predictions. Examples of data and information emerging from the Far East are far more diverse. Examples include: Deaths in terrorist attacks, book sales by an author, inflation rates. Other than data such as height and weight, wealth distribution and album sales are scalable items. For example, you can sell your book in digital format through site infinitely, because the digital format does not require you to print a book with each copy sold.

Another example is wealth, which is highly scalable: And if you analyze the data looking at the average, you can be deceived with a representation of the income distribution that does not accurately reflect the reality of people. Be careful not to be turkey on Thanksgiving Day… Imagine the following scenario.

You are a turkey, which is fed daily, well taken care of every day, for years and your life is going ok.

But on Thanksgiving, a surprise occurs. You are not fed, you are murdered and eaten by the people who feed you. That is the metaphor that Taleb uses to illustrate how to observe the past to predict the future. It also proves that the Black Swans are relative. For you the turkey , the Thanksgiving dinner is definitely a Black Swan, but for the Thanksgiving dinner cook, there is no surprise in this event.

We often look at our lives as if things were happening in the Mediochristian, when, in fact, life occurs much more in the kingdom of Extremistan. To learn to deal with this, one must accept, embrace and understand the unpredictable nature of the world, rather than ignore it.

That will not make you not be the turkey, but at least it will allow you not to get accustomed to the status quo. Our brains play tricks on us. We tend to conclude that similar sounding phrases have absurdly different meanings. The lack of proof that something exists does not mean that it does not exist. It is not because there has never been an earthquake in your city, that it will never occur, will it? But given our ignorance, to seek evidence that what we believe is real can greatly limit our line of thought and make us ignore information that does not support our beliefs.

It is often more valuable to search for facts that go against our beliefs than those which support it.

That leads to much more powerful discoveries and allows us not to be blinded. Another flaw in our operating system is that we are in the habit of creating stories based on collections of events that occur in our lives. The author calls this failure a narrative fallacy.

It is characterized by exploiting our limited ability to analyze sequences of events without adding an explanation to them. Explanations tie the facts and make them easier to remember, but our brains always seek to tell a story where events are correlated and meaningful.

However, by condensing facts into a single narrative, we end up generating a loss of information and have a great tendency to oversimplify things. We discard the data that makes no sense in our history, and that leaves us at the mercy of the swans. According to cognitive psychologists, we have two kinds of thoughts.

Black swan theory

Type 1 thinking is instinctive, fast, immediate, and based on your experience with the world. This system is advantageous for having high speed and helps you react quickly to external stimuli but is also very prone to errors. System 2, on the other hand, is slow, rational and self-aware, much more useful in the classroom not at a time of quick thinking between life and death. The problem is that we often confuse thoughts from system 1 with system 2 because at level 1 we have no control over them.

Often, we believe that the thoughts that come from system 1 are based on analysis rather than reflexes, and this harms our cognition.

System 1 leaves us blind to Black Swans and often misinterprets them as well. System 1 considers primarily anecdotal data and based on our experience rather than using statistics or empirical data. Know your brain. Have you ever dreamt of being a great author or creating a great company in an innovative market? If this is what you seek, Taleb has an interesting point of view. The human being needs constant, tangible results and rewards to continue to pursue something.

A number of small, constant rewards usually bring more happiness and fulfillment than a substantial reward. There are two types of progress. The uniform and linear, and the nonlinear, which tend to occur in large jumps, alternating with stagnation.

But while we prefer to believe that the world works in a linear perspective, this is not the right way to approach the problem. Nonlinear situations are the most constant in life, and linear conditions tend to be the real exception.

His learning comes from things so diverse and in many cases random that to believe that the linear model is the best model ends up becoming a fallacy. Besides, the humans have the limitation that in viewing the past, they select the parts of a process that fit his impressions and ignores the parts that do not conform to his preconceptions.

Our mind creates a record that ignores the facts which do not fit our mental model, and Taleb calls this the silent evidence. For example, humans tend to see authors of famous books as extremely talented and attribute the reason for their success to their talents. Many writers with various works never get to have a book published by a major publisher and become a bestseller.

As we do not have access to the works of hundreds of thousands of authors who have never had their books published by the major publishers, we tend not to take into account their importance and relevance.

We, as human beings, tend to consider only the Black Swans who have had the right combination of talent and luck to secure their place in the hall of fame. The presence or absence of talent cannot be proven as a cause of success in the publishing world.

The Impact of the Highly Improbable: With a new section: “On Robustness and Fragility”

For Taleb, serendipity, positive surprises, plays a crucial role in the role of scientific breakthroughs.But since we only see the outcome — in this case, the hurricane — then all we can do is guess at which of the simultaneously occurring events actually influenced that outcome.

Now we get to define the term. So, thinking that this trend must continue, you spend your life savings on stocks. While we tend to believe that the past is a good indication of the future, this is often a fallacy. The fact is that tiny, apparently insignificant events can have unpredictable, major consequences. Rather than affecting only individuals, sometimes, entire societies can experience a Black Swan.

But given our ignorance, to seek evidence that what we believe is real can greatly limit our line of thought and make us ignore information that does not support our beliefs.

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