The Black Swan: The Impact of the Highly Improbable (2nd edition)

Citation

Dent, P. (2010), "The Black Swan: The Impact of the Highly Improbable (2nd edition)", Journal of Property Investment & Finance, Vol. 28 No. 6, pp. 475-476. https://doi.org/10.1108/jpif.2010.28.6.475.1

To prepare for my 12‐hour flight back from Shanghai earlier this year, I visited the Foreign Language Bookstore in Fuzhou Road and picked up this book, The Black Swan: The Impact of the Highly Improbable. The cover assured me that if I read this text, I could ignore the “experts” and not worry about uncertainty.

Having read the book I now know what the term Black Swan actually means. To me, it is no longer just a large aquatic bird of the family Anatidae chiefly of the genera Cygnus and Olor, having webbed feet, a long slender neck and, in this case, black plumage. No, in fact, it is a rare event that has extreme impact and is predictable only retrospectively.

The problem, according to the author, is that “we do not spontaneously learn that we don't know that we don't know”.

The book, which has been extended for this March 2010 edition, is divided up into four parts. Part one is principally about psychology ranging from madmen, sceptics and prostitutes (with a bit of Casanova thrown in to complement some of the more scholarly findings of Daniel Kahneman). Most of parts two and three cover the areas of business and natural science. Strange bedfellows it might seem at first but nevertheless the narrative steams along here. The final part, the end, reminds us that we are black swans, so do not worry.

At first glance part one may seem wide ranging and made up of a series of random ideas, theories and events gathered from the history of the human race. However, if, having read the whole part, you, like the author sit back and observe the stream of consciousness running through the text, you may experience a eureka moment. His was “the cosmetic and the Platonic rise naturally to the surface”. We accept a superficial explanation of events. Something that appears has more validity than something that is hidden.

If you can accept that, then the various serendipitous strands making a loose structure to the book and seeming to have no logical connections, will either draw you into the author's view of history and the flow (or not) of information, or it will frustrate you. In a way this book is the black swan it is trying to describe. It is like a random walk through a spectrum of disciplines and historical characters and events, linking them but not attempting to suggest any systematic development. The author questions the way that we try to make sense of the world by using past information when there is no logical progression because much of history is silent – there is a gap. It is this gap that produces the black swan. This is important to remember when it comes to a subject such as borrowing. Basing our confidence on past performance “… debt implies a strong statement about the future, and a high degree of reliance on forecasts”, he believes that debt can be dangerous “… if you have some overconfidence about the future and are Black Swan blind, which we all tend to be”.

In the context of real estate, to which the author does not refer beyond references to the debt crisis, the theory put forward in the book questions the process by which we gather and interpret data. Accepting the thesis here we should be more conscious of the spaces in between that data, accepting that there is a “narrative fallacy” in time series and datasets which should raise questions about our reliance on their reliability. In fact in the additional material for this later edition, Taleb goes on to examine robustness and rigidity of systems, natural, financial, social. All significant in current debates on recession, globalization and climate change. These additions seemed, as they are, thoughts following events, perhaps included more for selling copies of the book than providing addition substance to the argument.

In the concluding chapter Taleb seems to have many worries. In the field of finance for example he sees “flimsy theories” used to manage risk which enables “wild ideas” to be rationalised. If the book had finished there I might have left it as a cacophony of ideas around the theme of randomness and unpredictability and little immediate practical application. However, in the dying moments, Taleb retells the story from a classmate in Paris who no longer runs for trains. The very day after finishing the book I found myself in a queue at the “Travel Today” Counter in Oxford station frustrated that an elderly gentleman was into a long drawn out negotiation regarding a discount on a previous journey. Rather than getting overly stressed by the prospect of missing my train, I accepted it as a rare event that has extreme impact and is predictable only retrospectively. There is not usually a long queue, I usually catch my train. Perhaps, however, it is these that are the rare events, and “usually” has no bearing on my present predicament.