The black swan


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The black swan

  1. 1. THEBLACK SWANThe impact of the Highly Improbable<br />Nassim Nicholas Taleb<br />
  2. 2. About NassimTaleb<br />Lebanese American <br />Bestseller author<br />Black swan – 12th most influential books post WW II, more than 3 million copies sold<br />Professor at several universities including oxford<br />Current advisor to IMF & Universa<br />He was a hedge fund manager & wall street trader<br />
  3. 3. Black Swan- What is this book about?<br />Managing risks & reducing the risk of being a victim of life’s circumstances<br />Allows one to challenge the status quo in the society<br />It adds certainty to the world of uncertainty<br />
  4. 4. Change in belief<br />People in the old world believed that all swans were white prior to the discovery of Australia<br />Severe limitations to our learning from observations<br />Existence of white swans does not confirm the non existence of black swans<br />
  5. 5. What is a Black Swan event?<br />It is an outlier, because nothing in the past can point to its possibility<br />It carries and extreme impact, both positive and negative<br />Human nature makes us weave explanations for the outlier making it explainable and predictable<br />
  6. 6. Black Swan events and opportunities<br />Black swan logic makes what we don’t know far more relevant than what we know<br />What one knows cannot really hurt us<br />No discovery came from designing and planning-they were mere black swan events<br />Strategy is to tinker and collect as many black swan opportunities as possible<br />
  7. 7. Study, analyse and research<br />Study rare and extreme events in order to figure out common ones<br />One’s library must contain as much of what one does not know i.eantilibrary<br />Society's ingratitude to those who solve problems<br />
  8. 8. Stock market crash of 1987<br />Largest market drop in modern history<br />Those who did not need their investments and those who invested in this period benefited<br />Those who needed their investment during this time suffered losses<br />
  9. 9. Types of worlds<br />Taleb classifies realities into 2 types-<br /><ul><li>Mediocristan:</li></ul>The dull predictable world most of us live in<br />Jobs here are rewarded in relation to time, effort and skill<br />Some kind of equality is possible<br /><ul><li>Extremistan:</li></ul>Rewards are based on luck<br />High inequality<br />Payoffs are huge- few winners & many lossers<br />
  10. 10. Scalable professions or business<br />Here one is not paid by the hour (author of harry potter books)<br />Revenues depend on the quality of decisions<br />Business can be scaled and there is no cap on the number of clients you have<br />This is black swan driven<br />However in ‘work by the hour’ income is subject to gravity (dentist, barber)<br />Here revenue depends on continuous efforts and not quality of decisions<br />
  11. 11. Categories based on mindset<br />Some are like a turkey-exposed to a major blow up without being aware of it<br />Others prepare for the big event that might surprise them-black swans<br />
  12. 12. The Turkey problem<br />The hands that feeds you can be the same one that rings your neck<br />The turkey is fed everyday and it feels that humans are looking after its interests till the day of thanksgiving<br />A acquaintance behavior may indicate genuine affection but it may confirm his calculating desire to get ones business<br />Humans have an optimistic bend and are risk takers but avoid uninformed risk taking <br />
  13. 13. More observations<br />Awareness of a problem does not mean much<br />What we see is not necessarily all that is there- history hides black swans<br />We have a natural instance to look for instances to confirm our story –these are easy to find<br />We like to summarize & simplify but it distorts our mental representation of the world especially in case of black swan events<br />Whenever there is a upward or downward movement of stock the media feels obligated to give reasons for the same- question the value of this information<br />Governments are great at telling what they did, but not at what they did not<br />Preference for insuring against probable small losses at the expense of less probable but larger impact ones<br />
  14. 14. Taleb on risk taking<br />Known known’s – things we know we know<br />Known unknown’s – there are something we do not know<br />Unknown unknown’s – the ones we don’t know we don’t know<br />Unknown unknown is an uncertainty that is unknown and is unanticipated and hence unaccounted for in formal decision making <br />
  15. 15. Why do not see black swans?<br />We worry about those that happened<br />We do not worry about those that may happen<br />We love the tangible, the conformation, the real, the visible<br />We respect what happened and ignore what could have happened<br />The challenge is to know the difference between what we actually know & how much we think we know<br />When dealing with uncertainty do not focus, look at the big picture<br />
  16. 16. Grey Swans<br />We can turn black swans to grey swans by reducing the surprise effect and employing new prediction methods<br />It is an event which can be anticipated to a certain degree, but is considered to be unlikely to happen and will have sizeable impact on the market<br />
  17. 17. Lucky to be alive… <br />We are quick to forget that being alive is an extraordinary piece of luck, a remote even, a chance event of monstrous proportion<br />Taleb uses an analogy of a speck of dust on a huge planet as the odds of each one of us being born<br />Each one of us is a Black Swan<br />
  18. 18. THANK YOU….<br />