The Black Swan

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The Black Swan

by: Nassim Nicholas Taleb

Central Theme:
A black swan is a surprising and unpredictable event precipitating massive impact. Dangerously, the tendency afterwards is to manufacture an oversimplified narrative to explain its cause and effect.

Recommendation:
Taleb challenges the tendency to rely too heavily on predictive models and base risk protection on studies of the past. After all, the bell curve ignores large deviations and the greatest challenge to the financial system is not completely predictable.

Summary:
In a world moving towards big data, it is prudent to seek answers and predictions based on research and science of the highest quality. However, having a better understanding of its limitations can help make decisions more informed. Black swan events like 9/11 or the financial crisis of 2008 had earth-shattering consequences because leaders could not have predicted them. Understandably, the reaction was to study everything that happened before and after each event to best prepare for the next challenges, and aim to never let the same one cause problems again. While the quest to understand the past is important, is it also essential to take inventory of what cannot be predicted, in order to assess risk better.

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