BLACK SWANS

In "THE BLACK SWAN: The impact of the improbable" Nicholas Taleb, author of predictive mathematics books such as:

"Fooled by Randomness";"Lecturing birds on Flying";"Dynamic Hedging"and "The Volatility Surface" discusses the influence of the highly improbable events that have tremendous impact on every day life and our dependence on the normal and assured.

Scholars such as Sir Francis Bacon warned us of assuming more order than exists in the natural chaos of things and events. Our natural thought process accept narative information, not statistical uncertainty. So we are geared to have a story to explain events and predict future events. These stories usually have some basis in fact, but are likely to be more erroneous than true. Example: "Stocks trended higher today based on expectations of a more favorable unemployment report" True or false ? Probably false, but nonetheless we expect and feel more comfortable with the story.

Madison Avenue works this principle by stories like "Use this shampoo for luxurious hair that has that natural luster and sheen". They reinforce the story with an image of a professional model with chemically enhanced shiny hair, then repeat,repeat and repeat.

Now the acceptance of narative information is based upon experiencing past events and learned consequences. We place heavy emphasis on past events and believe they will necessarily repeat, when unrepeatable chance is a better explanation for the event or experience.

We were shocked by the 9/11 event--something like that just couldn't have happened, yet it did and many of our lives lives were changed forever. The really important paradigm changing events (black swans) are largely unpredictable.

Swans are always white; therefore if a black swan comes along it is an unusual unexpected unrepeatable event.

Nassism suggests that while we make take comfort in trying to anticipate or predict these black swan events with stories, it is for the most part impractical and useless.

How then a person steeped in the value of common sense (sometimes spelled as comncents) prepare for these black swans ? Know and understand that we live in a chaotic largely unpredictable universe, and whereas logic and order are important they do not always rule. Above all, be careful what you listen to.

With Love and Kindness,

THE HATMAN