It's not everyday that you hear Nobel Prize winning economists referred to as "idiot savants". However, Nicholas Nasim Taleb does not shy from calling a spade a spade, or a white swan, black. "The Black Swan - The Impact of the Highly Improbable" works on many levels offering practical advice for the hardened investor and generous doses of philosophy for the everyday seeker of happiness.

Till black swans were spotted on the coast of Australia, it was always assumed that all swans were white.   Black swans caused disruptions, not only in ornithologist meetings, but also in the popular human imagination at large.  

To state the obvious, life serves up infinitely more complex variations than the coast of Australia. Black swans occur far more frequently than we think. Yet the human race (that includes Nobel Prize winning economists) steadfastly continues to underestimate, even ignore, the impact of the highly improbable.

The tendency to ignore outliers severely limits our ability to predict the course of history.   A cursory look at any of the major historical milestones, be it World War I, the fall of the Soviet Union, the stock market crash of 1987 and 9/11 reminds us of how powerful black swans can be.

Why do we find ourselves so unprepared for Black Swans and their consequences?

Taleb contends that we are hard wired to draw absolute inferences on the basis of repeated observations. It was a process that worked extremely well for our ancient ancestors. After a mauling or two, they learned that tigers were not good for their health and ran away on spotting one.

However, this line of thought does not work in a more innovative era, where numerous complex and interrelated variables are at play.   Here, repeated observations hold far less meaning.

A more relevant analogy for our unpredictable world is not of the man or woman escaping the tiger, but that of the turkey, which after being fed heartily for a thousand days, wakes up to an entirely new fate on Thanksgiving.

Our penchant to view and explain the world through stories also contributes to black swan blindness. Narratives allow us to simplify the world and squeeze it into our head. As a result, abstract statistical information does not influence us as much as anecdotal information, no matter how intellectually sophisticated we might be.   (You might read millions of statistics about the improving situation in Sierra Leone, but decide not to go on the basis of one bloody photograph of a dead person). We make the world a far simpler place than it really is by connecting random points to form a narrative.  

Even black swans cannot escape the workings of our anecdotal mindsets. Once a vivid black swan event occurs, we weave it into a narrative fabric and indulge in analyses and predictions - an activity that has kept many "experts" employed and occupied in the United States after 9/11.    

The tendency to simplify also causes us to ignore what Taleb calls "silent evidence". These are breathing, even vibrant, but sadly muted facts that help explain many a phenomenon - the thousands of dynamic, extroverted people who fail to become CEOs, the millions of gamblers not kissed by "beginner's luck" or the risk taking dashers who are failed, extinct and dead Casanovas (be warned, if you set out to be a Casanova, the odds are highly stacked against you)

Ultimately, Taleb blames the decline of empirical skepticism as the single most important factor causing black swan blindness. He worships at the altar semi-skeptic philosophers and scientists, the Poppers, Poincares and Montaignes, who believed that one must state a hypothesis and set out to prove it wrong.   Pursuing the opposite and more popular method, something Taleb poetically labels, Confirmation Shonfirmation can be deceptive .

Along the way, Taleb makes frequent jumps from poetic and metaphysical ruminations to more practical matters. This transforms the Black Swan into one of the best advice books of recent years. The common strand running through the realm of the practical in Taleb's world is simple: Maximize your exposure to positive black swans and minimize exposure to negative black swans.

Enhanced positive black swan exposure explains why it is better to be a publisher than a writer and a venture capitalist over an entrepreneur (if financial gains are your thing). It also suggests why one would be better advised to be a speculator than a doctor or prostitute (more scalable professions). Black Swans make a compelling case for investors to pursue the barbell approach, through which they save a majority of their savings in ultra conservative ventures, and allocate a smaller portion towards high-risk speculative bets (rather than invest in "medium risk" funds).

Beware of pursuing positive black swans! Planning your life around a positive black swan event (I will win Indian Idol or play a lead role in the next Yash Chopra movie) is risky. People are happier when faced with small and repeated success. Not surprisingly, unhappiness is the exact opposite; like spoons of castor oil, we want our unhappiness served in less frequent doses.    

Taleb ends his book by examining the flaws of the Gaussian bell curve, or the GIF (Great Intellectual Fraud). He delves into a through analysis of why fractal Mandelbrotian mathematics is more suited for a Black Swan world, rather than the Gaussian curve that places a very low emphasis on deviation of the mean or average.   With the recent surge in fractal applications (the compression of the Encarta encyclopedia and special effects development in movies such as Star Trek), fractal mathematics will soon enough carve out a space in popular imagination.

Taleb is a writer who is clearly passionate about his subject matter. This tends him to place too great an emphasis on the random and unpredictable events at the expense of the more mundane pursuits. True, wildly unpredictable events are important, but so are the efforts of billions of day to day things being carried out by day to day people. If the Beatles were black swans, their hours of music practice weren't.

However, to criticize Taleb excessively for ignoring the mundane would be to miss the point of his book. Ultimately "The Black Swan" carries an important message in a world that is more interconnected than has ever been, and at the same time filled with the most number of all-knowing experts per square inch of our planet.

The Black Swan - The Impact of the Highly Improbable teaches us the value of being humble. Black swans remind us to be more cautious, as we attempt to predict the future, and explain the past.   It shows us that the words "I don't know" are not the words of the foolish, but that of the truly wise.

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© COPYRIGHT 2002-2012 Arun Krishnan