Nassim Nicholas Taleb joined a discussion at IBM about his book The Black Swan. Here are my notes from the discussion. I've added my own comments and explanations (based on his books).
As an author, Taleb tries to be universal and not customize his message to the audience. (I think he's talking about the ideas he's espousing, not the method of communicating. Your communication style HAS to consider the audience or your won't be heard.)
What motivated Taleb to [start] his career in Wall Street? As a child Taleb wanted to be philosopher. But at about age 21, we decided that business was more "entertaining" than philosophy. In 1987, he decided to leave Wall Street (his departure took 15 years to complete).
He stresses that he's not "socialized" by his profession -- he's not a Wall Street person by nature or culture. Smart Money, wanted to make him one of their "Power 30," and Taleb was not interested--he's not a Wall Street person.
But why is he interested in the markets? Taleb is interested in the general properties of randomness. Investment markets are a superb place to study randomness.
The Black Swan (TBS) is really an attempt to rewrite his first (philosophical) book Fooled by Randomness (FBR). They are both the same book. TBW is simply an attempt to take (some) of the ideas that were implicit in FBR and make them explicit in TBS. To take what was implied in FBR and state it directly in TBS.
His next book will further this attempt by focusing on elements of tinkering (thinkering?) and religion.
His central point: Marx strove to translate knowledge into action. Taleb wants to translate LACK of knowledge (randomness) into action.
The Black Swan is not about dynamics of world, but about the dynamics of how we misunderstand the world.
Some black swans are in areas that yield a high impact, others are low impact.
Taleb learned a lot from publishers--mostly in a negative sense. Publishers want books that can be read in airports. They favor books that have a short, crisp message that's easy to grasp.
Taleb has the opposite mission. He wants a book that's impossible to skim, that can't be read in an airport, but still entertains (and provokes)....and possesses something mysterious.
Who is the book written for? Taleb says that the books that survive through time were not written for specific audience or a specific mission. (Zen and Art of Motorcycle Maintenance). I would say that some books that survive that were written for a specific audience, but contained ideas that crossed over to a much broader audience (Harry Potter?).
Taleb has NOT written a how-to book. His book is in 3 parts:
- Expose errors of representation of universe (5 biases, difference between post-diction and prediction, influence of anecdotal evidence and the sensational).
- Prevention more effective than rescue, yet we celebrated the rescue and ignore successful preventions.
- Prediction errors in some domains are huge, fox and hedgehogs,
(I think I have the 3 wrong here. Need to re-examine his book to correct.)
How do we act? Identify the domain of action. If a mistake is made, what is the magnitude of the result in this domain? As a dentist, a mistake probably has less impact than if a Movie studio backs the wrong movie. Focus on error rate, not on prediction itself.
Tipping point - Gladwell, the author of the Tipping Point, has it backwards. Take a pile of sand where you keep adding grain after grain to the pile. Eventually, the pile will collapse. For Gladwell, the grain of sand that causes the collapse is the cause of the tipping point (the collapse of the pile). But for Taleb, it's the pile's structure that that's important, that leads to the collapse. The structure of the pile is more important than the action of any one particle. It is the structure of the pile that leads to the significance of the additional grain.
It's the organization, not the leader, that's critical to a corporation's success...or something like that.
It's the network, not the individual, that's important.
Taleb didn't want his book to be a best seller, fought with publishers. Wouldn't take their "advice." He feels that FBR is an inferior book to TBS. Oddly, the 2006 sales of FBR exceeded all sales in previous years.
He sees FBR(?) being about the philosophy of history and the psychology of errors.
Wide audience interest: artist in arizona, NY show of black swans (the unexpected events). Small number of people succeed, remaining barely survive, spread among artists, philosophers,
TBS sells in India, more than in US.
911 not a black swan in terms of lives lost, but WWI, which had much more impact, was a black swan event. The computer is another black swan event but for a different reason than predicted. The computer did not spread because of its computation prowess. The computer spread as a replacement for the typewriter.
Taleb does not advocate hunting for black swans--you can't hunt for the random and unpredictable. The best we can do is prepare (mentally or some measures) for the unexpected. Just try not to be the turkey. (Turkey thinks life is pretty good and never anticipates his ultimate outcome and purpose.)
Avoid trying to be skeptical in all domains--takes too much energy; it's unsustainable. Do as he did. Decide not to be a sucker in the domains where randomness (black swans, consequences of errors are large) can hurt you. And to take advantage of domains where black swans can benefit you.
Don't take advice from anyone who wears a tie.
Dennis said he won't take advice from anyone without holes in his teeshirt--LOL!
Business model? No models It's about being opportunistic, open to discovery, tinkering (thinkering). Businesses often (always) operation under the illusion of design. Execs believe they can design the perfect corporation that will match the opportunities of the future. But the future, with its opportunities (and tragedies), is unpredictable, so designs fall short, and businesses go under, or scramble to adapt well after the fact ("preparing for the last war").
Boeing is the outgrowth of what was originally a lumber company. Medical research looks for cures, but rarely finds what they are looking for. It's the accidental discoveries that held cures, not the "purposeful" discoveries (whatever that means).
It's not what you're looking for that matters; it's the side effects.
Taleb advises businesses and individuals to tinker with ideas. Do not invest in one big thing; rather, invest in many things; focus on tinkering, trial and error, small things....tinker with open mind,
Investment wisdom: Results of investment are based on number of bets, not dollars invested,
Illusion of design - bad news is that many corps design for the unknowable future and, inevitably, some will survive, even thrive. This doesn't mean they could reliably design for the (next) future. No, they were just lucky. But that luck is spun as skill; skillful leadership, etc. That's bunk. What about the many that failed?
The environment doesn't like (our) designs. But it's what we naturally do. Focus on being opportunistic, not designing for predicted opportunities (which are random, unpredictable).
We strive for an illusion of order. We need to do more testing and be skeptical of ALL models.
If put in charge of educating first graders about your ideas, how would you do this?
How do you learn English? Learn by doing, learn by playing, and discover language, anti-academic. Interest that drove me into work morning. Let the kids discover things themselves. Do not teach grammar, let them discover their own map.
Taleb's own son, at 7 years old, became obsessed with airplanes. Taleb encouraged that obsession--even over formal education. His son is now 18 and applying to college. While his grades aren't great. he'd published professional journal in aviation because of his passion/obsession. He'll success because of his passion.
Those that succeed are actually anti-academic. They break the rules and follow the path of their passion, wherever it takes them. His son wasn't interested in math until he needed to learn some math to understand how planes flew. His passion for the math led him to learn math and other subjects. But when he learned enough, he didn't keep learning math for it's own sake. He learned enough math to satisfy his passion for aviation. So passion must guide the learning, not a curriculum.
Conclusion: Humans are much better at doing than at knowing. Not equiped to be learners (in what sense?). Equiped to be doers.
Taleb's new book is a war against design and explores a class of people he calls skeptical empiracists...the true tinkerers. The tinkering class of thinkers (thinkerers) were destroyed by the enlightenment.
What see around you in large measure is due to luck and little skill.
Unconvinced? Look at any company and try to find observable evidence of skills. Look at a cook, a driver, a mechanic....then look at a chairman or CEO. What observable evidence of skill can you point to with a CEO. Hard to find. You may say the success of a company, but can it really be attributed to that? Is there observable evidence of a CEO's skill? It's like that pile of sand. It's the structure that causes it to fall, not the final grain of sand.
Don't try to predict. It's not possible to predict the random. Instead, be prepared. And don't have too much data, which can give you the illusion that you can predict.
Technical version of book on his website...where?
Look at the track record of insurers. They overestimate profitability because they don't account for the rare events (the black swans). Rare events are not included in their projection, and with insurers it's the rare events that degrade profits. For insurers, the impact of unseen is huge and negative.
Bank returns, they blow up, too.
But technology is a different beast or domain. Tech, bio-tech, while collectively not as profitable, these kinds of businesses are benefited by black swans--that amazing new drug or tech gadget that takes off in the market. These businesses, the impact of the black swans is hugely positive.
Rule - Corp locked into a 10-year plan has huge disadvantage to a corp locked into a 1 year plan. The 1 year corp can be opportunistic. The 10 year corp cannot.
Rule - A corp locked into a 1-year plan has one billionth of error of 10 year plan (math, non-linear, asymptopic). That is, the error measure of the 1 year plan is 1 billionth the error measure of the 10 year plan.
Ideas don't work the way we want them to work. A good corp is NOT crisp and neat. A good corp is adaptable to changes in the environment. A good corp is decentralized. (We need to give Taleb something to push against, specific example or situation, the less vague the better.)
Two kinds people: banker, who is locked into one envirnment and income stream is steady. Consultant who can fulfill a variety roles and functions, is more flexible, though his income stream is quite variable. The consultant will adapt.
Both lose their job. Banker is stuck. Not adaptable. Consultant can used skills for variety of environments.
When asked about his "model," Taleb declares that his message is skepticism. He's not positing another model. He's saying we need to be skeptical of all models.
Popper was asked, can you falsify falsification? Not exactly. Maybe it's the wrong question since there's no model. He's offering a...method?
Taleb is offering skeptical approach to models.
What takes place outside of your expectations but has little or no impact, that's mediocrastan.
There's a difference between an absence of evidence, vs. evidence of absence, and a common thinking flaw. Example:
A medical test is performed on a person and comes out positive for cancer. The doctor presents this diagnosis and prescribes medical treatment. After the treatment is completed, the test is run again. This time the test comes out negative, the test offers an absence of evidence for cancer.
However, after the test results the doctor will sometimes say: "You are cancer free!" That declaration suggests the test is "evidence for an absence" of cancer. It is not. The tests are an absence of evidence for cancer. What?
Imagine a large room. You illuminate part of the room with a flashlight (the cancer test). The first time you turn on the flashlight, you see cancer. So you do the cancer treatment, then turn on the flashlight (cancer test) again. This time you don't see cancer. Does that mean the room doesn't contain ANY cancer? No, it only means you can't see it with your flashlight. Yet the doctor, with his "You're cancer free!" statement interprets the results as if the entire room (patient's entire body) is cancer free.
But it's deeper than that. Actually, you can NEVER prove something does not exist, right? As with swans, for centuries, Europeans thought all swans were white. It took on sighting of a black swan to refute that "fact." You can never prove all swans are white.
Taleb is proposing a way to deal with our common misrepresentations of world.
Black swans can be negative or positive (perhaps both, depending on the perspective used). Taleb encourages us to structure our lives, businesses, etc. so that take we take advantage of positive black swans.
When you pick up a book that tries to think outside of box, while you're reading it, don't try to put it back into the box.
|Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets by Nassim Nicholas Taleb
|The Black Swan: The Impact of the Highly Improbable by Nassim Nicholas Taleb
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- Fooled by Randomness - by Nassim Nicholas Taleb
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