Summary of The Black Swan by Nassim Nicholas Taleb

BookSummaryClub Blog Summary of The Black Swan by Nassim Nicholas Taleb

In this book, Black Swans refer to the seemingly random events that occur all around us. The big question surrounding them is are they actually random and can their consequences be avoided? You see, according to Taleb if we learn to understand our limitations, we can make better predictions that will allow us to realize the opportunities that lie before us. 

It’s not easy to wrap your mind around the concept, but that’s understandable because we don’t know what we don’t know. This is what you can find out from this book summary along with:

  • More about Black Swans
  • Where we go wrong
  • Why it’s important to establish what you don’t know

Key lesson one: More about Black Swans

The one thing that human beings have become known for doing is taking external stimuli and turning them into meaningful information. It has what kept us alert and able to survive. It has also allowed us to develop many things over the centuries including scientific protocols, mathematical models and also being able to create the idea of philosophy. However, even this is what human beings have accomplished, this does not mean we have mastered the art of reflection. 

In fact, for the most part, we are terribly narrow-minded with regard to the world. We tend to hold onto the ideas we have developed about how the world and how it works. This doesn’t work out well for us because as time passes, human knowledge increases. Unless we also continue to keep up with these developments, the ideas we cling to become outdated. Just consider how far the field of medicine has come in the last two centuries. Even though doctors back then were confident in what they knew and the treatments they used, can you imagine if they were still using leeches to treat common colds and fevers? Remaining stuck in our beliefs can therefore cause us to miss some important concepts that fall outside of these. 

It is thus easier to understand how we mistake some things as being completely random when in fact they are just not within our narrow views. These events are referred to as Black Swans. The name came about because before they were first seen, people thought that only white swans existed. Even up until now, if anyone mentions a swan, most probably still envision a white swan. It isn’t until a black swan is seen that ideas can change. 

The effects of black swans in our lives can vary. Depending on what ideas and views you have already formed, the effects can range from mild to earth-shattering. The more information you have, the less the effects. For example, if you had inside information at the race track that a particular horse was on a winning streak and the best candidate to win, chances are you will bet on the horse. However, when the race starts, the horse is happy to trot to the side and let the other horses pass it. This would be seen as a random event to you as the horse was a sure win. This black swan would be disastrous for you, but for the others who knew that the horse and its rider planned to throw the race as a protest, they would be smiling because they knew to bet against them. 

Black swans can also vary in how wide their effects are felt. The example with the horse affected just individuals but there have been some events that have affected entire societies. Take for example when Copernicus first suggested that the Earth was not the centre of the universe. This went against everything that was known at the time and went against the Church. 

Key lesson two: Where we go wrong

Now that we know about Black Swans, let’s take a look at some of the mistakes we make that stop us from seeing them. Firstly, we have a bad habit of developing narratives based on the past. We believe that what has occurred in the past is a good indication of what will happen in the future. This could not be further from the truth and often leads to mistakes. There are too many unknown factors that will prevent our narratives from coming true. 

Then there’s confirmation bias. We tend to seek out evidence that reinforces what we already know. Confirmation bias can be so strong that people actually ignore any contradictory information. Just imagine how you would react if you heard something that goes against something you already believe in. You would probably dismiss it as being untrue or, if you do look for information about it, you look for the information that will prove it untrue. Both these mistakes occur because it is human nature to think this way and it is difficult to avoid. 

Another thing that is unavoidable is the very way our brains work to categorize information. It worked when we had to learn how to survive in the wild, but in today’s environment, it can be a bit distracting. One such instance is something called the narrative fallacy. It occurs when we create linear narratives to describe a current situation. We are faced with enormous amounts of information every day and our brain has learned to only pick up those that it considers useful or important. Then in order to give meaning to unconnected bits of information, we put together a narrative in our heads. It’s kind of like when we look back at our lives and try to connect why we are the way we are. For example, you may think your love of food stems from the fact that your mom cooked you dinner every night growing up because it is the memory you find meaningful. However, creating such narratives does not allow you to develop a proper understanding of the world because they are based solely on looking at the past. This causes you to disregard the multitude of other explanations that your brain will deem insignificant. 

The other problem regarding this categorization of information is that we have difficulty distinguishing different types of information. The difference between scalable and non-scalable information being the most important. Non-scalable information refers to things that have a definite upper and lower limit like your height or body weight. Scalable information refers to things that are non-physical and have no limits like wealth or sales. By not being able to differentiate these two types of information, you will end up making huge mistakes and it could possibly skew your view of the world. For example, if you wished to determine the wealth of the people of a particular country, the easiest way to do this is by adding up everyone’s income and dividing it by the number of people in that country. This would give you wealth per capita. However, wealth is scalable and it is very possible that a small proportion of citizens account for a large proportion of the country’s wealth. Therefore, the way you have looked at the wealth of the country is not an accurate representation of reality. 

The next mistake we make is that we think we know all the possible risks we need to be prepared for. This is referred to as the ludic fallacy. The truth is, no matter how hard we try, it is impossible to calculate every single risk. 

Key lesson three: Why it’s important to establish what you don’t know

We are often aware of what we know and consider this an advantage. However, it is actually more advantageous to be aware of what you don’t know. Much like the fallacies discussed in the previous section, if you focus on what you do know, you limit your views and leave yourself open to Black Swans that can have harmful effects. 

For example, if you want to invest in the stock market and you focus on your knowledge which is a decade old, you could lose all your money. If you focus on what you don’t know ie. what has happened in the market since you last paid attention, your risk is greatly reduced. It is something that poker players have mastered. They know the game and the rules, it is what they are unaware of – their opponents, their cards and their strategies, that enables them to play the game better. 

Being aware of our limitations does not guarantee that we will not make mistakes or wrong predictions. It just helps us make fewer bad decisions. For example, being aware of confirmation bias will stop you from only looking for information that confirms your beliefs. Or knowing how your brain categorizes information will lead to you analyzing more information than you would usually consider. By using these approaches, you could possibly have an advantage over others who do not possess this self-awareness. 

There is no guarantee that we will ever have the upper hand over random events. What we can however do is limit just how affected we are by Black Swans.

The key takeaway from The Black Swan is:

No matter how many predictions about the future we make, we’re mostly bad at it. This is because we focus too strongly on what we already know and believe in along with our past experiences. This may seem like a foolproof method but it really isn’t. We would fare better by being aware of our shortcomings and what we don’t know. By doing this we strengthen our understanding of the world. This will reduce the impact of Black Swan events when they occur. 

How can I implement the lessons learned in The Black Swan:

Self-analysis is critical to implement the lessons learned in this book. You have to take a close look at how you reach conclusions and make decisions. In addition, you should also aim to identify what you do not know. In doing so, you will be able to move forward with a new outlook regarding how you make predictions and decisions about the future.

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