Nassim Taleb

nassim taleb black swan Nassim Taleb is a guy I came across through an economic forum and later there were many references to Nassim Taleb from Art De Vany who mentioned that Mr Taleb had been using Evolutionary Fitness successfully.

I've briefly flicked through Nassim Taleb's book "The Black Swan: The Impact of the Highly Improbable". I'll look at it more when I get a chance at a later date. This was his second best selling book after "Fooled by Randomness".

I'd previously written something which was possibly quite brilliant on Nassim Taleb in this very post but a random problem with my server meant that half of it was deleted so you'll just have to make do with this summary. (Who knows what kind of Black Swan event those thoughts could have created after being released into the blogosphere)

Seriously though what Nassim Taleb says may be quite cutting to your own ego if you think your great success is due mainly to your own skill and you see validity in his theories. He may be some kind of genius and he writes humorous anecdotes that explain his ideas in original ways.

Nassim Taleb lets us know that Black Swan events have extreme impact on the world and they're entirely unpredictable. The course of world history has largely happened the way it has due to a select few black swan events caused by a select few people.

Black Swan events are extremely impactful both negatively and positively - on a world level, at a community level, and at a personal level. (Please note that impactful probably isn't a word).

I got to thinking that maybe we have our own personal black swan events. A few key personal events in our lives that impact them dramatically.

Here's how Nassim Taleb's black swan may apply to you at a personal level:

Certain events can have a major major impact on your life which are unpredictable and beyond your control. You'll often overestimate your own skills as a reason for the outcomes in your life and underestimate the randomness factor as a reason for the outcomes in your life. You'll create little stories and neatly packaged theories that explain what happened which have no basis in reality.

You'll accept conclusions based on too little information simply because they support your belief.

You'll think certain results can be replicated when they can't and become disappointed when they are not. You'll use games to model real life situations and not take into account the possibility of extreme events.

This may sound kind of depressing since you may have much less control over your life than you think but Nassim Taleb says his book shows you how to approach a life of randomness happily. It's hard to believe that he knows how to live in randomness happily since he's often seemingly sarcastic and spiteful.

But perhaps he saves himself by telling us one of the best ways to exposing yourself to potential personal positive black swan events is to " maximise the serendipity around you " that produces positive outcomes. He advocates living in big cities and going to lots of cocktail parties. (You never know who might hear your brilliant idea and want to help)

Mr Taleb offers an original strategic advice: prepare yourself for positive unexpected events (be in a situation so that if a big opportunity comes our way you will make the most of it). and protect yourself from negative unexpected evetns (even if their probabilty seems negligible).

Here are some analogies to explain some of Nassim Taleb's ideas.

Casino's can predictably make money. The odds are always in favor of the house over the long term and they are always well diversified across multiple tables of games to prevent some high roller swinging million dollar bets from taking down the Casino.

Casino's have actuary egg-heads doing all the calculations to make sure they make money and they have all kinds of plans and systems to stop cheaters. But its the truely random unpredictable event which has caused casino's to lose money. For example the president of a casino's daughter was kidnapped and he illegally took a massive some of money from the casino reserves to pay the ransom. A top performer was lost at one casino after being maimed by a tiger eliminating the major attraction to their casino.

Alternatively George Clooney and Brad Pitt may decide your casino is their favorite on a whim, it attracts other stars and publicity which causes the casino to become a huge success. You put your success down to good planning, great decor theme etc, and hard work when really the biggest influence of your casinos massive success all came down to an extreme unpredictable occurrence. You were lucky that the subjective opinion of Clooney and Pitt was in alignment with your set up.

In a nut shell extreme random events can have a far greater effect on our lives than we give them credit.

Now what I'm about to say next... well I don't know if it is compatible with Nassim Taleb's theory but I'd like to add a couple of ideas. These are just random ideas I had.

Firstly: Marathon Runners generally have poor fast twitch muscles. They're weak, but if they get some baseball training, step up to the plate enough, and swing enough times they'll probably hit a home run now and then playing baseball simply because they are lucky enough to time and middle the ball right off the bat.

Secondly: There are also certain actions that you may take in your life which have a major impact on your life which you could have never predicted. You may not remember taking a specific action but that specific action had a far greater effect on your life than multitudes of other actions you took. You might learn nothing from noting this action however because it only triggered the events when the action was taken in that context of your life.

Thirdly: Practicing fundamentals. If you practice correctly the fundamental skills in any field for a couple of hours per day you will be better than 99.9% of the population simply because the rest of the population doesn't practice them at any level let alone 2 hours per day. But certain random situations can occur that dramatically hinder or accelerate your progress.

If you play a game of baseball everyday until you're 80 you'll hit quite a few home runs. You'll certainly hit more than someone who plays no games. Whatever game you want to have some success with, well you have to be in the game first. The more often you're in the game the better it will be for you. You might have a goal of hitting 100 home runs by playing for 20 years. You calculate this as achievable based on the average number of home runs hit by a baseball player. Any number of random scenarios outside of your control may occur which prevent you from playing for 20 years or alternatively any number of random scenarios may occur which accelerate your success.

For example you're out surfing one day and a shark bites your arm off so you can't play baseball any more.

Or your sister meets and marries a semi professional baseball player, he helps you train, and you complete your goal in 5 years.

Persistence does have some credence but random events beyond your control can help or hinder your progress in varying degrees in whatever you do in life.

The number of outside events that can happen which influence a certain outcome are infinite. That's why in real life the odds are never 50:50. The ludic fallacy says we can never accurately calculate the odds in real life.

Here is an interesting quote about cancer that Nassim Taleb personally survived.

"Climbing the Himalayas or running a marathon or winning a bicycle race may give their owner a sense of accomplishment, but they do not benefit humanity-especially when it comes at the detriment of one's health. These competitive games stretch what makes us humans.

Furthermore as a cancer survivor, I feel entitled to say that recovering from cancer is NOT an accomplishment. So worthier many persons than myself and Armstrong failed in that battle, for reasons outside their control."

Core to Nassim Taleb's Black Swan theory is the idea that world is really shaped by the wild powerlaw swings of "Extremistan." and your life too.

9/11 was a completely unpredictable event which has massively shaped western government policy over the last 5 years. Recently I watched an interview by a CIA agent on the use of torture. One of the guys they tortured was a mastermind of the 9/11 attack. Interestingly the CIA agent said that never in their wildest dreams did the planners and perpetrators of the attack expect the results they got. It far exceeded their expectations and predictions.

Yet the result they did get had a massive impact on the policy of western governments over the last 5 years.

This is an example of Nassim Taleb's Black Swan in action. An extreme unpredictable single event created by only a few people having a major influence on the shape of the world.

The anecdotes I read in his book were interesting but personally I don't know if I necessarily subscribe to Nassim Taleb's ideas.

I believe people can be luckier than other people due to their beingness.

Hardly scientific I know. And what does that statement really mean

Nassim Taleb advocates putting 85% your investment fund in t-bills or other very low risk investments and then take the remaining 15% and place it in a variety of highly speculative investments. He also advocates that you choose a non-scalable career since a dentist drilling teeth for 30 years can do well while somebody who takes up a scalable career like a business owner, actor, or writer etc has a very small chance of success and a high chance of failure.

Maybe it would be a better idea to devote 85% of your working hours to a non-scalable career and 15% of your time to a scalable career like a business owner. That way you can reliable make steady cashflow but also put yourself in a position where you can experience cash windfalls.

Anyway if you want to get better at baseball you're still much more likely to if you practice correctly everyday.

And you should never do something as a means to an end because your success could be beyond control and lifes to short. Instead practice baseball or whatever because you enjoy the process. Enjoy what you are doing now and let go of the outcome.

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