Similarly, one might expect this bookto contain some explicit list of past events the author considered Black Swans(here I am thinking of Black Swans, not Gray Swans).
Taleb's criticisms of this theory -- that it ignores Black Swans, and that future probabilities are intrinsically impossible to assess well -- have considerable validity but he doesn't make sufficiently clear the distinction between this and traditional stockbroker advice,(10) A book on (say) the impact of Empires on human history might be expected tocontain an explicit list of entities the author considered as Empires; that way, areader could analyze any asserted generality about empires by pondering whether itapplied to at least most empires on the list.
If you read the book and extracted the mentioned instances, and thenread it again to see how much of the material was directly relevant to most of thelisted Black Swans, then it would be a very small proportion.
In the end this is a trivial decision making rule: I am very aggressive when I can gain exposure to positive Black Swans -- when a failure would be of small moment -- and very conservative when I am under threat from a negative Black Swan.
A "Black Swan" is defined as an event characterized [p.
Success in markets, like life, is a combination of ability, effort, and chance. Much of intelligent thought is distinguishing between what is predictable versus what is unpredictable; it is to any organism's advantage to find out what we can figure out and change, and what is forever mysterious and unalterable (eg, the ). The brain is constantly predicting, trying to figure out cause and effect so it can better understand the world. Most of what humans process is predictable, but because we take predictable things for granted, they are uninteresting. We can't predict some things, but instead of resorting to nihilism, we merely buy insurance or manage our portfolios--in the broad sense of the term--to have an appropriate robustness. Discovering certain things are basically unpredictable does not diminish our constant focus on trying to predict more and more things. People will disagree on which risks at the margin are predictable, but that's to be expected, and we all hope to be making the right choices that optimize our serenity at the margin of our predictable prowess.
From Taleb's Wikipedia circa July 2006, we see where Black Swan thinking goes when applied to an investment strategy:
50] of themes related to Black Swans:
To the degree The Black Swan has argument about the essence of risk they are at least a generation old, even if many are pleasantly introduced to them for the first time (fat tails see Mandlebrot (1962), nonquantifiable risk see Knight (1921), for various cognative biases see which was a compilation of papers mainly done in the 1970's), and these books have spawned, or are clearly referenced, by literally thousands of books. The Black Swan may popularize the concept of low probability events, what were called 'peso problems' (see ), and that would be a good thing. But ultimately, the bumper sticker "shit happens" is kind of funny, kind of true, but hardly profound.
Taleb views Black Swans as the only alternative.
To be popular it is helpful to make people think they are learning something new about something novel and important. Yet the masses do not really like novelty, they like affirmation of their inchoate prejudices. Thus, a reader can leave The Black Swan thinking that any expert is either a charlatan or a fool except Taleb and those smart enough to appreciate him, a group that prides itself on knowing what they don't know, that any specific model is imperfect and therefore evidence is naive Platonism. The current financial crisis may make radical theories that suggest junking existing theory more attractive, but remember that the Great Depression was a Black Swan, and this did not help macroeconomic theory so much as lead it into the desert for 40 years, giving many a wasted life championing not merely a welfare state, but socialism and all its unintended horrors. If something really unpredictable happens, the large number of perennial disparate forecasters of disaster, combined with bayesian statistics, still implies those calling for the end of times are probably 'lucky fools', as Taleb would say. I do agree his claims of an extreme event were spot on over the past year, but this is no less impressive that Henry Blodget's , calling the 1987 stock market crash, or 's subprime investment success up to 2006 made him correct. I look to broader historical data and see buying out-of-the-money options is poor investment strategy, so I don't consider recent events proof of some really useful truth.
Black swan green essay. Coursework Academic ServiceBlack Swans are unpredictable but can be prepared for by establishing identification methods, response goals, and quick response strategies before the event occurs. The principles and protocols that Ernst and Young provided in this thought paper are intended to help guide your organization to establishing a response strategy. Taking this approach can provide your organization with a number of benefits including but not limited to reputation protection, a faster return normal business and minimization of the impact.
Black Swan Movie Essay, Beate Lichtenberger Dissertation, Doctoral Dissertation Assistance EducationThe bottom line is that people tend to underappreciate low probability events when they are immaterial--because they are immaterial! So they underestimate the prevalence of Black Swans because if you find one, who cares? But hurricane insurance, a 3-delta put option on GM? You will pay up for that.
In the end, he promises to teach us how to take advantage of these Black Swans. His strategy is pretty simple. He argues for a barbell strategy of much safety, and a dollop of wild risks, which is, basically, an exposure to something totally unquantifiable, like Llama farms, or any of the myriad opportunities neighbors, spammers, and late-night paid-TV tout. In the context of Tobin’s two fund separation theorem, this means the ‘efficient’ risky portfolio is the most insanely unquantifiable and risky portfolio you can imagine, tempered by its modest allocation. Yet this implies the unquantifiable and risky portfolio has very good returns, which by definition (unquantifiable) is merely an assertion. As per the super safe assets, the only consistent risk premiums are from extending from overnight to a couple years in bond maturity, and from going from AAA to BBB credit risk. Super safe, is generally 'too safe', in that economists find this risk premium outsized relative to its volatility or covariance difference.