The Book of Anti-Revelation

August 3, 2013 § 2 Comments


blackswanThe Black Swan: The Impact of the Highly Improbable (Nassim Nicholas Taleb)

“It is probable that many things should happen contrary to probability”
– Agathon, quoted in Aristotle’s Poetics

“It is not a good idea to stuff one’s text with quotations from prominent thinkers, except to make fun of them or to provide a historical reference.”
– Nassim Nicholas Taleb

I have seriously considered renaming my blog ‘Reviews of Unfashionable Books’. Most of the books I read do not make for good cocktail party conversation. Let me explain.

“Hey, glad you could make it…folks, meet my friend PSri…I must have told you about him. This is the guy who reads a lot. Gather around, y’all – this is going to be good. Tell us, PSri: what are you reading now?”

Caste, Society and Politics in India by Susan Bayly,” I’d say, enthusiastically in the old days, or “The Conquest of Peru by William H Prescott”, or “a little novel by E Phillip Oppenheim”, or much worse, “the first volume of Radhakrishnan’s Indian Philosophy.” The crowd would part with astonishing rapidity, stampeding like wildebeeste at the scent of a lion, and the host would eye me with the reproach of the righteous wronged. You have failed me, the look would say; you do realize, don’t you, that I am now tainted by your extreme uncoolness?

Soon I learnt to recognize the look, and to dread the what-are-you-reading question. Nowadays, I just say, “oh, not a lot…my emails from work mostly,” when I get invited to parties, which is not very often, as you can imagine.

So it is a refreshing change when I read something that others have read, or read the reviews of in the fashionable magazines, or at the very least, seen pushed into their face at airport bookshops – even if it was six years ago. Additionally, I have read a few blockbuster bestsellers in the past – Freakonomics, for instance, or Tom Friedman’s Lexus and the Olive Tree – but I found those books shallow and insincere, and had few good things to say about them, which wasn’t particularly well-received in the circles I moved in. But Taleb is different in one critical regard – I don’t disagree with the views expressed in his book, or with the underlying mathematics.

Not that Taleb comes up with any devastating or life-changing revelations. In fact, he deals exclusively in anti-revelations. Don’t believe in revelations, he says. Don’t believe people who predict the future based exclusively on past trends – the longer into the future they claim to see, the clearer they claim to see it, the more precise their predictions are, the bigger frauds they are. None of this is terribly exciting stuff – it doesn’t teach you how to get rich quick, or how to realize your inner potential, or even to pick a winner at the stock exchange. But none of it is wrong.

The Black Swan became a raging success for two reasons. The first is the style in which it is written – epigrammatic, polemical, conversational, adversarial, snappy and waspish. For a man who prizes scepticism over overconfidence, there is very little uncertainty in his division of people into the Absolutely Right (Karl Popper, David Hume, Al-Ghazali, Yogi Berra, Henri Poincare, Friedrich Hayek, Benoit Mandelbrot) and the Horribly, Stupidly Wrong ( Plato, Wittgenstein, people who wear ties and suits and attend formal events, Myron Scholes and Robert C Merton, Paul Samuelson, and most other winners of the Economics Nobel Prize). I suppose the combative style is necessary to hold reader attention, given the relative blandness of the topic. At least Taleb doesn’t fudge the math to bump up readership, a la that Freakanomics fellow.

The second, and probably decisive, reason for the book’s success was, quite appropriately, a Black Swan event – the subprime crisis and the untimely, unpredicted and utterly sudden demise of Wall Street worthies like Lehman Brothers and Bear Stearns. Suddenly, Taleb’s book was the toast of town: if we’d only listened to this man, they said, we wouldn’t be in this pickle. Sense prevails in bad times, and if you discount the over-the-top histrionics, for the most part Taleb talks eminent good sense. It can largely be summarized as:

  1. Epistemic arrogance leads us to overestimate what we know and to underestimate uncertainty
  2. The distant future is essentially unpredictable with any degree of confidence
  3. We should avoid unnecessary dependence on large-scale harmful predictions
  4. To reason that taking risks is justified by the spectacular economic growth we have seen is “exactly like someone playing Russian roulette and finding it a good idea because he survived and pocketed the money
The philosopher Berra, who reportedly summarized Taleb succinctly into the epigram: The Future ain't what it used to be.

The philosopher Berra, who reportedly summarized Taleb succinctly into the epigram: The Future ain’t what it used to be.

None of this is particularly brilliant, original – or the least bit refutable. There’s only one thing I can offer by way of critical response. We all make predictions, consciously or unconsciously, a hundred times a day – whether we can cross the road safely before that truck passes, whether we will miss our flights or be late for our meetings, whether we will enjoy that new movie, whether the clothes we are wearing would be appropriate for the social occasions and climatic conditions we are likely to encounter in them, whether we should buy those pants now or wait until we lose a dozen pounds, whether our favorite team will win their next game, or when the next bus will arrive. Nearly all of these are short-term predictions with little at stake, and past data-based models provide us decision support with reasonable accuracy. It is only in the context of long-term investment strategies based on quantitative models that probabilistic predictions have the potential to fail spectacularly, largely because of the erroneous neglecting of outlier risks in the calculations. Taleb’s points may be universally relevant, but they don’t have massive consequences outside of  very specific contexts.

Physics provides a good analogy. In our day-to-day world, Newton’s laws are a pretty good approximation for what to expect. It is only when we expect similar behavior at a sub-atomic or a planetary level that we err and need a correction to our Newtonian instincts. Those of us who are not professional physicists need never worry about quantum or relativistic effects; and even physicists can safely ignore those effects while crossing the street.  And so it is with Black Swan events. I will always be conscious of the possibility of a terrorist hijacking my next flight, but that means neither that it is too risky to fly, nor that I should smuggle in a handgun on every flight as a precaution. I cannot lead a sane and healthy life expecting, or elaborately preparing for, the worst at every turn. To paraphrase Aristotle, it is probable that during the course of my life, I will run into a few black swan events. If I could predict which ones, and exactly when they will occur, they wouldn’t be Black Swan events.

Perhaps the only lesson out of all this is the need for humility, and for a healthy dollop of scepticism about our knowledge of the future. The Greek term hubris, and the Arabic use of the term inshallah come to mind.

Look, all I know is this. I earnestly look forward to the next party that I get invited to – this should happen any time this year or the next – as I now feel equipped to discuss the contents of a famous book animatedly and to popular acclaim.

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