Nassim Nicholas Taleb: The Black Swan

The author is an easy guy to like, particularly if you're a fan of contrarian thinking and sardonic prose.

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Nassim Nicholas Taleb is an easy guy to like, particularly if you're a fan of contrarian thinking and sardonic prose. He's trenchant, witty and undeniably smart. And while Mr Taleb here is more self-indulgent than in his previous book, Fooled By Randomness - his Levantine ancestry plays prominently, as do his intense likes and dislikes of certain thinkers - he has deservedly received plaudits for this scholarly yet down-to-earth account of the role large and impossible-to-predict events play in our lives. These events, Mr Taleb argues, can jet us from prosperity to penury (or the reverse) in the space of a few weeks, if not a few moments.

The Black Swan is by and large an expansion on ideas developed in his 2004 book Fooled By Randomness: much as we like to think events and markets follow patterns, the sad reality is that a lot of the news that swirls around us is noise. If markets decline by one per cent, you'll inevitably see news stories explaining why - hedge funds had to liquidate, or bad earnings in Asia pushed stocks lower. In truth, we just don't know what moved markets any more than we know what caused yesterday's sandstorm at 4pm.

It's entertaining (and often humiliating) to learn just how flawed we are, teetering from bias to bias, rarely capable of accepting the unknowns that confront us. Scholarship has shown that losses hurt us psychologically about twice as much as gains cheer us up. That leads us to adopt investment strategies that consistently make small gains, even if the end result is a large loss. We'd rather make US$1 (Dh3.67) a day for 100 days and then lose US$200 on a single day, in other words, than lose US$1 a day but expect to make US$200 all of a sudden.

These tics make us human, but they also make us prone to serious errors in judgment. In elucidating them, Mr Taleb savages all of us (including himself). Usefully, though, he also outlines some strategies for operating in this decidedly uncertain world.

Publisher: R, 2007