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Black swan theory

Whomp

Keep Calm and Carry On
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Many of the people who run in my circles are currently reading this and I ordered it today.

The_Black_Swan_The_Impact_of_the_Highly_Improbable-119186023686830.jpg


Nassim Nicholas Taleb is a professor at Univ. of Mass Amherst, applied statistician and derivatives trader-turned-philosopher.

His views have been controversial in many areas of study since he has been very outspoken regarding professions such as economists, statisticians, scientists, investment professionals and academics.

Here's what he says is his central argument.

Forbes said:
Before the discovery of Australia, Europeans thought that all swans were white, and it would have been considered completely unreasonable to imagine swans of any other color. The first sighting of a black swan in Australia, where black swans are, in fact, rather common, shattered that notion. The moral of this story is that there are exceptions out there, hidden away from our eyes and imagination, waiting to be discovered by complete accident. What I call a "Black Swan" is an exceptional unpredictable event that, unlike the bird, carries a huge impact.
It's impossible for the editors of Forbes.com to predict who will change the world, because major changes are Black Swans, the result of accidents and luck. But we do know who society's winners will be: those who are prepared to face Black Swans, to be exposed to them, to recognize them when they show up and to rigorously exploit them.

Things, it turns out, are all too often discovered by accident--but we don't see that when we look at history in our rear-view mirrors. The technologies that run the world today (like the Internet, the computer and the laser) are not used in the way intended by those who invented them. Even academics are starting to realize that a considerable component of medical discovery comes from the fringes, where people find what they are not exactly looking for. It is not just that hypertension drugs led to Viagra or that angiogenesis drugs led to the treatment of macular degeneration, but that even discoveries we claim come from research are themselves highly accidental. They are the result of undirected tinkering narrated after the fact, when it is dressed up as controlled research. The high rate of failure in scientific research should be sufficient to convince us of the lack of effectiveness in its design.

If the success rate of directed research is very low, though, it is true that the more we search, the more likely we are to find things "by accident," outside the original plan. Only a disproportionately minute number of discoveries traditionally came from directed academic research. What academia seems more masterful at is public relations and fundraising.

This is good news--for some. Ignore what you were told by your college economics professor and consider the following puzzle. Whenever you hear a snotty European presenting his stereotypes about Americans, he will often describe them as "unintellectual," "uneducated," and "poor in math," because, unlike European schooling, American education is not based on equation drills and memorization.

Yet the person making these statements will likely be addicted to his iPod, wearing a T-shirt and blue jeans, and using Microsoft Word to jot down his "cultural" statements on his Intel-based PC, with some Google searches on the Internet here and there interrupting his composition. If old enough, he might also be using Viagra.

America's primary export, it appears, is trial-and-error, and the innovative knowledge attained in such a way. Trial-and-error has error in it; and most top-down traditional rational and academic environments do not like the fallibility of "error" and the embarrassment of not quite knowing where they're going. The U.S. fosters entrepreneurs and creators, not exam-takers, bureaucrats or, worse, deluded economists. So the perceived weakness of the American pupil in conventional studies is where his or her very strength may lie. The American system of trial and error produces doers: Black Swan-hunting, dream-chasing entrepreneurs, with a tolerance for a certain class of risk-taking and for making plenty of small errors on the road to success or knowledge. This environment also attracts aggressive tinkering foreigners like this author.

Globalization allowed the U.S. to specialize in the creative aspect of things, the risk-taking production of concepts and ideas--that is, the scalable part of production, in which more income can be generated from the same fixed assets through innovation. By exporting jobs, the U.S. has outsourced the less scalable and more linear components of production, assigning them to the citizens of more mathematical and culturally rigid states, who are happy to be paid by the hour to work on other people's ideas.

Let us go one step further. It is high time to recognize that we humans are far better at doing than understanding, and better at tinkering than inventing. But we don't know it. We truly live under the illusion of order believing that planning and forecasting are possible. We are scared of the random, yet we live from its fruits. We are so scared of the random that we create disciplines that try to make sense of the past--but we ultimately fail to understand it, just as we fail to see the future.

The current discourse in economics, for example, is antiquated. American undirected free-enterprise works because it aggressively allows us to capture the randomness of the environment--the cheap Black Swans. This works not just because of competition, and even less because of material incentives. Neither the followers of Adam Smith nor those of Karl Marx seem to be conscious of the prevalence and effect of wild randomness. They are too bathed in enlightenment-style cause-and-effect and cannot accept that skills and payoffs may have nothing to do with one another. Nor can they swallow the argument that it is not necessarily the better technology that wins, but rather, the luckiest one. And, sadly, even those who accept this fundamental uncertainty often fail to see that it is a good thing.

Random tinkering is the path to success. And fortunately, we are increasingly learning to practice it without knowing it--thanks to overconfident entrepreneurs, naive investors, greedy investment bankers, confused scientists and aggressive venture capitalists brought together by the free-market system.

We need more tinkering: Uninhibited, aggressive, proud tinkering. We need to make our own luck. We can be scared and worried about the future, or we can look at it as a collection of happy surprises that lie outside the path of our imagination.

.
http://www.forbes.com/2007/05/23/nicholas-taleb-innovation-tech-cz_07rev_nt_0524taleb.html

His definition of black swan.
Spoiler :
wiki said:
In Nassim Nicholas Taleb's definition, a black swan is a large-impact, hard-to-predict, and rare event beyond the realm of normal expectations. Taleb regards many scientific discoveries as black swans—"undirected" and unpredicted. The September 11, 2001 attacks are often referred to as a Black Swan event. [1]

The term black swan comes from the ancient Western conception that all swans were white. In that context, a black swan was a metaphor for something that could not exist. The 17th Century discovery of black swans in Australia metamorphosed the term to connote that the perceived impossibility actually came to pass. Taleb notes that John Stuart Mill first used the black swan narrative to discuss falsification.

The high impact of the unexpected
Before Taleb, those who dealt with the notion of improbable, like Hume, Mill and Popper, focused on a problem in logic, specifically that of drawing general conclusions from specific observations. Taleb's Black Swan has a central and unique attribute: the high impact. His claim is that almost all consequential events in history come from the unexpected—while humans convince themselves that these events are explainable in hindsight.

One problem, labeled the Ludic fallacy by Taleb, is the belief that the unstructured randomness found in life resembles the structured randomness found in games. This stems from the assumption that the unexpected can be predicted by extrapolating from variations in statistics based on past observations, especially when these statistics are assumed to represent samples from a normal distribution (the standard bell curve). Taleb notes that other functions are often more descriptive, such as the fractal, power law, or scalable distributions; awareness of these might help to temper expectations.[2] Beyond this, he emphasizes that many events are simply without precedent, undercutting the basis of this sort of reasoning altogether. Taleb also argues for the use of counterfactual reasoning when considering risk.
His website
http://www.fooledbyrandomness.com/

Discuss.
 
This looks very interesting. I might pick up a copy to read in my free time, a concept that is harder and harder for me to remember.
 
Indeed an intriguing concept. It doesn't come as that much of a suprise for me, although certain relatives of mine might have trouble grasping this concept...unfortunate considering they still can't figure out why their stock trading doesn't work out how they expect.
 
I've seen this at bookstores. I think I'm going to pick it up as well pretty soon. Another new book I'd highly recommend is Made To Stick.
 
I think his point is that anyone who thinks they know what's happening in the future (i.e. economists) is fooling themselves. He believes using bell curves to explain things is fool's gold. Don't be afraid to read it Traj since it's throwing a lot of traditional conventions out the window.
 
Thanks Whomp, Im adding this to my list.

As for your statement above, I think its a warning to anyone who is extrapolating the future based on present day data,trends, and ideas/beliefs. Such an idea applies to not only economists, but anyone predicting future events.

And I wholeheartedly agree with its sentiment .
 
:D My comments weren't specific to economists. It could just as easily be a hedge fund manager or the sky is falling type person.
 
It applies to many different areas of life. Be an observant risk-taker in your thinking.
 
I'd love to read it, but don't have the money (or the time) to get into it.

I may just tell my parents I need it for a class.
 
I didn't know that economists thought they knew the future though.

I thought most of them knew that it was like sitting in a car and only being able to look in the rearview mirror: You don't even know exactly where you are right now, forget about the future. The only thing you do know about is the past.
 
I thought economics was about averages, rather than one off events? I.e. on average, if you increase wages by X%, productivity increases by Y%. Maybe some people buck that particular trend, but I don't think they're the kind of people who end up changing the world. Maybe I'm missing something.
 
Oh lovely, an economist and statistician has finally discovered the history of science, technology and medicine!:goodjob:

Now he has applied it, and might yet get his red-white-and-blue head out of his all-American arse as well...:p

The British ran the industrial revolution exclusively on trial-and-error. Up to a point. As one historian of technology has put it: "The steam-engine taught scinece more than the steam-engine ever got from science."

And then from around 1850 the Germans invented modern experimental science, i.e. basic rearch, non-applied science, and completely ran away from the British in the development. Basic research: How to manage things in such a way that the unintended and unanticipated keeps turning up.

Which was why the US academic system, like everyone elses, was blueprinted on how German science was organised in the last decades of the 19th c.

It's all basic text-book stuff. I admit this "Black Swan" book does looks interesting, but then to those who also think so, I can likewise recommend Harry Collins' and Trevor Pinch's "Golem"-series:
— "The Golem: What You Should Know about Science"
— "The Golem at Large: What You Should Know about Technology", and
— "Dr Golem: How to Think about Medicine".

Their simile of science, technology and medicine as a "Golem" is due to precisely the fact that it is a process of well-intentioned advanced bumbling.

As for this guy's comments on how European education works (rote memorisation etc? really? it's rather a big and diverse place you know, just like the US), one really wonders where the hell he went to school there?:hmm:
 
sounds pretty interesting, but why all the euro-bashing?
My thoughts too. I would take it more seriously if he wasn't taking the opportunity to grind an anti-European axe and make a poor strawman argument, like this was some 12 year old writing an essay (our education isn't based on equation drills and memorization; snotty Americans also have unfair stereotypes about Europeans - as this article shows; comments about people being uneducated are usually about the people in general, and usually just American tourists, who aren't the ones responsible for the Ipod etc - similarly people moan about the stereotypical British tourist, but that isn't countered by citing examples of intelligent British scientists and inventors). Just because you're American doesn't mean you can take credit for those inventions, anymore than I can because I'm white.

And I know that Americans still like to fall for the "Europe is socialist" myth, but with have "undirected free-enterprise" here too.

I would say Nassim Nicholas Taleb needs to discover his own black swans, rather than believing the mythical European stereotypes.
 
A co-worker of mine informed me of this thru a lengthy conversation, I believe he read the book. It was very intriguing based on what he relayed. I plan to check this book out.
 
I've been enjoying researching what're the common elements of invention, creativity, and discovery. I don't like the knocking of education: a LOT of the 'tinkering' is done by people who really need to know their stuff that they're tinkering around with.

A focused and applied education really is required: but after that the inventors need other hobbies that they actually spend time in, and determination. It's the ability to cross-link between fields that leads to most invention - and (of course) the ability to recognise a good thing when you see it.
 
I thought everyone knew that scientific advancement is hardly ever 'planned' and that discoveries occur haphazardly. This is nothing new. I doubt that there is any difference in the 'directedness' in Europe and America.
 
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