Rating: Two Thumbs Up, Required Reading, with a note of caution.

This book review is hard for me to explain. On the one hand I want to say, go, go, go buy this book. On the other hand this book is not like Fooled By Randomness. Fooled By Randomness I feel was a book written because Taleb had some interesting musings. A book to amuse. The Black Swan is when Taleb gets on his soap box, explains, teaches, and rants.

It was funny at one point in the book Taleb points out how Merton Scholes sent Taleb a seven page discussion on how Taleb was a bozo, at least that is how I interpret the comment. I have people sending me email and comments on how I am a bozo, but I have as of yet not received seven pages. When you receive seven pages you pushed on somebody’s hot button.

And that is the point of the book, to push people’s hot buttons. The Black Swan is taking aim right dead and center on many things that we consider as fact. I can see why on Amazon The Black Swan gets a lack luster rating, as Taleb steps on people’s feet. This book reminds me of A New Kind of Science, and how it also is receiving lack luster ratings. The problem with Taleb’s book and Wolfram’s book is that they push the envelope. These books are pushing towards explaining the world using a different metaphor. And while many would like to consider themselves open-minded, the reality is, as my friend says, science itself has become a religion. 

To get an idea of what I am trying to point out, consider a very popular quant question.

If a family has two children and there is a boy in the family, what is the probability that there is a girl? 1/2 or 2/3?

What is the answer? Take a moment…

Ok, so is it 1/2 or 2/3? My first answer was no friggen idea because I have no idea what the bias is to having a girl or a boy, which by the way is not 50-50, but biased towards a boy. Yet by asking this question and assuming a 50-50 distribution between boys and girls you are biasing the answer. How can somebody think of another approach when you are biased towards 50-50? Answer is that you can’t, and that is what Taleb gets at, and it seems apparent whenever he refers to “Fat Tony.”

Of course you could argue this is just a thinking problem. But again the thinking problem is biasing you to think in a direction that might not be correct. If you look at some of the psychological aspects Taleb points out that people like to think in a way that fits a narrative. Thus people will use this thinking problem approach in real life when it does not apply.

So in essence this book is asking the question, “Do you believe in empiricism or or not?” If you want to believe in empiricism then The Black Swan is a fabulous book. If on the other hand you are convinced by your models you might as well use The Black Swan as a paper weight.

What I can say about this book is that it is one the few that I am rereading right away. I never realized how much of an empiricist I was until I read this book, and thus will reread the book to make sure I completely understood what he was writing about. 

Thus I give this book a two thumbs up review and a required reading for anybody that wants to trade.