The Black Swan

On the eve of the 2006 hurricane season, the National Hurricane Center forecast a “hyperactive” summer and fall, with eight to 10 Atlantic cyclones; instead there were five, smack on the 20th-century average. At the beginning of 2006, The Wall Street Journal forecast a bad year for stocks; the Dow Jones Industrial Average rose 16 percent that year. (Disturbingly, The Journal has forecast a good year for 2007.) The British government recently said climate change could reduce global G.D.P. by 13.8 percent in the first year of the 23rd century. Not by 13.7 percent, not by 13.9 percent — by 13.8 percent. In response to an astronomer’s discovery, The New York Times in 2004 declared that the universe might have a “peaceful end” in “tens of billions of years,” but cautioned that it could not rule out the cosmos’s exploding in a few billion years. Writing of the same discovery, The Washington Post predicted that the demise of the cosmos would require 30 billion years, adding this vital caveat: “It remains impossible to predict the fate of the universe with certainty.” Oh, so we can’t be certain what will happen 30 billion years from now!

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THE BLACK SWAN

The Impact of the Highly Improbable.

By Nassim Nicholas Taleb.

366 pages. Random House. $26.95.

The hubris of predictions — and our perpetual surprise when the not-predicted happens — are themes of Nassim Nicholas Taleb’s engaging new book, “The Black Swan.” It concerns the occurrence of the improbable, the power of rare events and the author’s lament that “in spite of the empirical record we continue to project into the future as if we were good at it.” We expect all swans to be white and are shocked when a black swan swims by.

Born in Lebanon in 1960, Taleb lived through a “black swan” when his serene homeland was cast into the chaos of civil war in 1975. After emigrating to the United States, he attended Wharton, then worked on Wall Street; today he is a professor at the University of Massachusetts. Black Monday in 1987, when Wall Street suffered its worst single-day decline in modern history — in a drop that started for no clear reason — was his epiphany. Chance, he realized, has far more influence than we care to admit.

In his 2001 book “Fooled by Randomness,” which became a surprise hit in the months after the Sept. 11 terrorist attacks, Taleb drew on his experience as an options trader to argue that stock-market projections are worthless because no one has any idea where prices are headed. After prices unexpectedly rise or fall, he wrote, experts impose specious retroactive narratives to divert attention from their ignorance. In “The Black Swan,” Taleb proclaims that the unexpected is the key to understanding not just financial markets but history itself.

History, he writes, proceeds by “jumps,” controlled by “the tyranny of the singular, the accidental, the unseen and the unpredicted.” Gradual change is our paradigm, yet actual change is “almost always outlandish.” And don’t get Taleb started on the Experts. Experts are charlatans who believe in bell curves, in which most distribution is toward the center — ordinary and knowable. Far more powerful, Taleb argues, are the wild outcomes of fractal geometry, in which anything can happen overnight. (“The Black Swan” is dedicated to Benoit Mandelbrot, godfather of fractal geometry.)

“The Black Swan” has appealing cheek and admirable ambition, and contains such wise observations as: “We attribute our successes to our skills, and our failures to external events outside our control.” But the book exhibits shortcomings, the first being lack of structure. Much of “The Black Swan” boils down to denouncing others for failing to see the future — though who exactly can see the future? And on this point Taleb overgeneralizes, for instance scoffing that the collapse of the Soviet Union was an unfathomably unlikely event that “no social scientist saw coming.” The historian John Mueller’s brilliant 1989 book, “Retreat From Doomsday,” published just before the Berlin Wall fell, did see it coming.

“The Black Swan” criticizes society for failing to expect extreme events. But it makes sense to focus mainly on preparing for what is likely. NASA should watch for asteroids that might collide with Earth — unfortunately, it doesn’t — but there is a certain reasonableness to the average person not being ever on guard against low-probability developments. Taleb complains that Wall Street traders attend his talks and then go back to making stock forecasts full of rubbish. But making forecasts is their job. Why customers (especially institutional investors) keep demanding Wall Street forecasts if such projections are really worthless is a question Taleb does not answer.

Taleb offers his ideas about unpredictability and luck as breakthrough concepts, yet others have been here before. Christopher Cerf and Victor Navasky’s hilarious book “The Experts Speak” (1984) chronicled highfalutin drivel, while James Gleick’s “Chaos” (1987) addressed Mandelbrot, fractal geometry and the limits of prediction. Jackson Lears’s “Something for Nothing” (2003) analyzed why the dominant American “culture of control” denies the importance of luck. Richard A. Posner’s “Catastrophe” (2004) argued that the government should prepare for extraordinary events. As for the Experts, Philip E. Tetlock’s “Expert Political Judgment” (2005) provided extensive detail on their dismal forecasting records. Taleb mentions most of these books in his bibliography, but except for Tetlock he doesn’t give them their due in his text.

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