Book Review: The Black Swan by Nassim Nicholas Taleb

The Black Swan offers insights into how we perceive randomness and the limits of our ability to predict the future. 

Our overreliance on intuition at the expense of accuracy, our inability to understand and define randomness, and even our biology itself can all contribute to poor decision making, and sometimes “Black Swans” that redefine our understanding of the world.

You may be wondering if you should read the book. This book review will tell you what important lessons you can learn from this book so you can decide if it is worth your time.

At the end of this book review, I’ll also tell you the best way to get rich by reading and writing

Without further ado, let’s get started. 

Lesson 1: We find it hard to distinguish scalable information from non-scalable information

Humans have devised numerous methods and models to organize information and make sense of the world. Unfortunately, we are not very good at differentiating between different types of information, particularly “scalable” and “non-scalable” information.

However, there is a significant difference between the two types.

For example, body weight and height have statistical upper and lower limits.

Body weight is non-scalable because there are physical limits to how much a person can weigh: while 1000 lbs is possible, 10,000 lbs is physically impossible. Because the properties of such non-scalable information are clearly limited, we can make meaningful predictions about averages.

Non-physical or abstract things, on the other hand, such as wealth distribution or album sales, can be scaled. When you sell your album digitally, such as through iTunes, there is no limit to how many sales you can make because distribution is not limited by the number of physical copies you can produce.

Furthermore, because the transactions are done online, you can sell a trillion albums without running out of physical currency.

Understanding the difference between scalable and non-scalable information is critical if you want to have an accurate picture of the world. The rules that work well with non-scalable data will not work well with scalable data.

Assume you want to estimate the wealth of the English population. Add up their total income and divide it by the number of citizens to calculate their per capita wealth.

However, wealth can be scaled up: a small percentage of the population can own a large portion of the wealth.

Simply collecting data on per capita income results in an income distribution representation that may not accurately depict the lives of the people of England.

Get The Book Here

Lesson 2: We tend to overestimate our abilities

One way we protect ourselves from harm is to assess and manage the possibility of harm. This is why we buy things like accident insurance and try not to put all of our eggs in one basket.

Most of us try to assess risks as accurately as possible so that we don’t miss out on opportunities, but also so that we don’t do something we will later regret.

To accomplish this, we must first evaluate any potential risks and then assess their likelihood of occurrence.

As an example, suppose you are looking for insurance. Ideally, you should purchase a policy that protects you against the worst-case scenario while not wasting your money. You’d have to weigh the risk of disease or accident against the consequences of those events happening, and then make an educated decision.

Unfortunately, we have a tendency to be far too confident in our knowledge of all the risks against which we should protect ourselves. The ludic fallacy states that we treat risk as if it were a game, with a set of rules and probabilities that we can predict ahead of time.

Nonetheless, viewing risk as a game is dangerous. Casinos, for example, want to make as much money as possible, which is why they have sophisticated security systems and ban players who win too much, too often.

Their approach, however, is based on the ludic fallacy. Casinos are not primarily threatened by gamblers or thieves; instead, it could be a kidnapper who kidnaps the casino owner’s child or an employee who fails to report the casino’s income to the IRS. The most dangerous threat to a casino may be completely unpredictable.

We can never accurately calculate every risk, no matter how hard we try.

Following that, we’ll look at how becoming aware of our ignorance is preferable to remaining unaware of it.

Lesson 3: Assessing risks more effectively begins with taking an inventory of what you don’t know

We often hear the phrase “knowledge is power.” But there are times when what we know is insufficient, and recognizing what you don’t know is far more beneficial.

When you only consider what you know, you limit your perception of all the possible outcomes of an event, making black swan events more likely.

Assume you want to invest in a company but your knowledge of stock statistics is limited to the years 1920-1928 – the year before the worst stock crash in US history.

There would be a few minor peaks and valleys, but the overall trend would be upward. So you put your life savings into stocks, hoping that the trend will continue. The next day, the market crashes, and you lose everything.

If you studied the market, you would have noticed numerous booms and busts throughout history. By focusing solely on what we know, we expose ourselves to unmeasured risks.

Conversely, if you can identify what you don’t know, you will greatly reduce your risk.

Poker players who are successful understand this principle because it is critical to their success.

Despite knowing the game’s rules and the likelihood that their opponents have better cards, they are also aware that there are certain relevant facts they do not know, such as their opponent’s strategy and the amount of money their opponent is willing to lose.

Knowing about these unknowns allows them to devise a strategy that isn’t solely focused on their own cards, allowing them to make a far more informed risk assessment.

Get The Book Here

Lesson 4: Being aware of our limitations as humans can help us make better choices

Understanding the tools we use to make predictions, as well as their limitations, is probably the best way to avoid falling into the cognitive traps we’ve seen.

We can’t avoid every mistake, but understanding our limitations can help us make better decisions.

If, for example, you recognize that you, like everyone else, are subject to cognitive bias, it will be much easier for you to recognize when you are only seeking information that confirms what you already believe to be true.

Similarly, if you know that humans like to organize everything into neat, causal narratives, and that this approach simplifies the world’s complexity, you’ll be more likely to seek information to gain a more complete picture.

You can gain an advantage over your competition with just a little bit of critical self-analysis.

Knowing your flaws is certainly preferable. When you understand that there are always risks associated with pursuing any opportunity, no matter how promising it appears, you are less likely to invest heavily in it.

Despite our limited ability to comprehend the vast complexity of our world, we can at least mitigate the harm caused by our ignorance.

About the Author

Nassim Nicholas Taleb is one of today’s most prolific economists and thinkers, having published works such as Fooled by Randomness and numerous essays in a variety of publications.

Taleb is a Distinguished Professor of Risk Engineering at the Polytechnic Institute of New York University.

Buy The Book: The Black Swan

If you want to buy the book The Black Swan, you can get it from the following links:

Get The Book Here

How To Get Rich By Reading and Writing?

You must be an avid reader who is hungry for knowledge if you are reading this book review. Have you thought about making money using your reading and writing skills?

Thanks to the Internet, the world has undergone a massive change in recent years. Blogging has now become the best way to make money online.

Since no tech experience is required, as long as you’re good at writing, you can easily start a blog that generates cash flow for you while you sleep. 

Warren Buffet said, “If you don’t find a way to make money while you sleep, you will work until you die.”

Instead of looking for a 9-5 job and staying in your comfort zone, it’s better if you become your own boss as soon as possible.

Find out how to build a blog and become a wealthy blogger today!

Recommendation: Make Passive Income Online

Leave a Comment

COVID-19 Took My Waiter Job, Then I Made 5-Figures From Home...Discover How I Did It!