The idea of the "black swan" seems very simple (and I'm not sure that Mr. Taleb meant it to be anything original or pseudo-revolutionary, but just intended to make a point; and others have made it more than it is). The idea is simply that, for a long time, everyone assumed all swans were white and that it was just taken for granted for a period of time, until a black swan was discovered, thereby upsetting people in certain circles whose worldview had been tampered with. It is meant to be a metaphor for unexpected, unpredictable, earth-shattering occurrences that change people's concept of the way the world works.
Mr. Taleb is a very entertaining speaker and has some very valid criticisms of economics and market theory, but the ingenuity or originality of the "black swan" theory never sat very well with me. First of all, I don't think that the discovery of a black swan is a suitable metaphor for catastrophe because it simply isn't that alarming. He used the September 11th attacks as an example of a black swan, but it's hard to imagine that the discovery of a black swan would have had the same impact as those attacks, and it's somewhat insulting to the families of the victims, I think. I don't think it's a very good metaphor.
But, beyond that, it's nowhere near new (and, to be fair, he notes that it is not his own idea -- J.S. Mill first put forward the metaphor). Embarrasingly, I couldn't figure out exactly why I had a problem with it until the past few weeks, and it wasn't important enough to me to go and do any digging about it. But, this week, I've been reading well-known investor George Soros's book on his philosophy around why current economic theory is invalid, and the interim discussion in the book reminded me of why I don't find much value in the "black swan" idea as a freestanding metaphor: it is an age-old point of contention in the field of philosophy of science.
In the 1930s, Karl Popper published his book, "The Logic of Scientific Discovery". In this book, he challenges the idea of verifiability held by the logical positivists -- a movement that formed in the 1920s. The problem with verifiability, he says, is that you can never ultimately prove something to be true. No matter how many times you demonstrate that something is true, you can never prove it to be eternally true because you can never be sure that you've tested every possible permutation of events and interactions surrounding the object of your assertion. Note that this is, essentially, the idea behind the black swan theory. Popper instead proposes that science would be better moving forward with the question of falsifiability: that a theory can be held as bring true, or "true enough", as long as there are no instances proving it to be false. By allowing this, it allows a much broader application of science but also leaves many of those applications hanging at various stages of completion. Unfortunately, I think that one of our biggest problems in modern times is that we aren't very good, as individuals, at discerning the natural sciences from the social sciences, and the mature sciences from the immature sciences. But, that's an aside.
So, what "black swan" adds to the above -- if anything -- is some consideration of the impact of having something unexpected occur because of an over-reliance on falsifiability. And, again, while "black swan" is a reasonable metaphor for the unexpected, I'm not sure it's an appropriate metaphor for the fallout of catastrophe because, no matter how hard you try, it is difficult to realize the discovery of a black swan as catastrophic.
I briefly studied the philosophy of science in university and it was one of my more memorable bouts. Thomas Kuhn's ideas about paradigms and the orderly progression of scientific revolutions, in my humble opinion, is very important for everyone to read as a part of any balanced literary diet. In fact, I think that it should be required learning for someone entering a society that is romantically involved with science and therefore can't always see it for what it really is.
I am enjoying Soros's book, although I admittedly find it a bit challenging in places and I'm not sure if it's because I'm not smart enough to process it, whether I'm overanalyzing (the most likely -- I do this with everything except drinking a glass of water), or whether it isn't very well written. It is more of a philosophy book than a book on economics or markets, and philosophy books have a tendency to appear to chase their own tail to those that can't or won't follow the narrative. Taleb's discussions, too, are very interesting and form a part of a growing collection of very good arguments against the insanity of an economic and social model that seems to know that it's wrong but sticks with the old because it can't articulate a good new. Here's the collection so far:
- George Soros: "The New Paradigm for Financial Markets: The Credit Crash of 2008 and What It Means" (book)
- Nassim Nicholas Taleb: "Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets" (book)
- Nassim Nicholas Taleb: Pop!Tech 2005 talk (video)
- Adam Curtis: "The Trap: What Happened to Our Dream of Freedom" (documentary)
"The Trap" is a very interesting BBC documentary that, in part, studies the impact of the false assumptions behind economic theory to its applications to broader society. Specifically, it attacks the idea that society should be operated on the assumption that people are purely self-interested and perfectly rational and can be motivated with personal incentives to meet numerical targets that measure all kinds of different facets of life -- a way of thinking that has gradually been developing over the past 40 years. It's not available on DVD, but you can find it on YouTube.