Saturday, January 23, 2010

The Black Swan - Nassim Nicholas Taleb

Most of the events in our history are happened with we being aware of it. Take the earthquake which devastated Haiti, the tsunami that washed the shores of many countries, the evolution of computers and digital world ( against the prediction of CEO of IBM, stating there sould be demand for 5 computers in the world), the fall of stock market in 1987 or the latest year ago, the dotcom bubble bust.. you can name numerous examples from history. Nassim Nicholas Taleb's new book, continuation from his popular 'fooled by randomness' looks at the follies behind the forecasts and predictions and the use of mathematical and scientific methods in arriving these predictions.

He says the analyst using various data and statistical models are no better in predicting that the taxi driver on the street, who does it out of his intuition. While one can rely on the common practice of tools, the other does not have one to fall back on. The end result is more or less the same. As we look back in the history, none of the events which caused permanent changes in the human life was ever predicted. We use the data from these events to forecast the future, only to be fooled by yet another event. He call these as 'black swan'.

The methods of statistical analysis are also questioned. He classifies them into mediocristan and extremistan. Looking at the samples of average wealth of the cross section of people, can tilt the measurement in absurdly higher numbers if Bill Gates was one of the sample chosen.

Taleb, looking at the unpredictable, highly probable events which can cause maximum impact ( like the Sep11 attack) with the current methods. He is highly critical of the Gaussian tools and the bell curve , which is deployed heavily by the current set of analysts.

Human as a species, uses methods of various nature to help us with justifying the predictions. We use narratives as one tool to explain one that is not understood by us, we look for confirmations from peers, look at silent evidences all to add value to the predictions. But the truth remain that, as a species we cant predict.

This book is about these unpredictable, random events in every day life which have lasting impact on our life. Our inability to understand and plan for the events, and how it is important to be prepared for the 'black-swan'. Funny, well written most of the part, this book can be an eye opener to look at the events with a different angle.

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The Black Swan ( 2007 )

Nassim Nicholas Taleb

Penguin Books

366 Pages

Rs 395

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