The Highly Improbable
Nassim Taleb is a controversial provocative character. He has made multiple careers out of studying and analyzing risk and uncertainty, mostly in the financial markets. He has been a writer, a professor and an options trader.
The markets are a good place to study risk because numbers are inherent to the system. And the lessons learned from there can also be applied to life outside in general.
He published his book — “The Black Swan” in 2007, and with it he published the prologue in The New York Times that year that explains the concept nicely.
The more I read about the concept the more I realize that the world is defined by numerous such events. You think of 9/11 and how it changed geo-politics forever. Or how the 2008 Financial meltdown changed the world of money.
Closer home in India, I think the 2016 Demonetization disaster was a positive black swan event for a digital wallet like PayTM. Nobody could have predicted it, it had a massive impact, and it somewhat seems obvious in hindsight once you analyse the craziness of the country’s leadership.
Checkout this article, it is an excellent primer on the concept and it gives a good framework to think about unpredictable but impactful events.
The Black Swan: The Impact of the Highly Improbable
(13 mins)
Watch this short video where he explains the concept. Checkout the slide at ‘1:36’ that he uses to enumerate the various black swan events in history. It includes the founding of Islam, the invention of the computer, the oxford English dictionary, the attacks of 9/11, the Harry Potter books, and even the humble neck-tie. Intriguing!
The website ‘Farnam Street’ does an excellent job of deconstructing such complex intellectual concepts and mental models. Check out their post on Black Swans.(1 min)
And they also propose methods to prevent oneself from the risk of negative black swans through developing margin of safety(7 mins) and redundancy (10 mins) in our systems.
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