The Black Swan: Part 1

If a turkey had philosophical ability, it might argue that life just gets better and better. The steadily fattening fowl would have evidence for this point of view because each day would bring with it more and more delicious fare. Every night it would go to bed feeling sated and eager for the next morning when the pleasures of the previous day would be repeated or even heightened. The reflective bird could confirm its optimism via the inductive method: empirical study would demonstrate an increase in nourishment, from which would follow the logical generalization that life was a process of ever-expanding fulfillment. On the Wednesday before Thanksgiving the turkey would suddenly lose faith in its theory of knowledge because it would realize that all previous factual information was useless to predict the future. To quote Nassim Nicholas Taleb, "It will incur a revision of belief."

Taleb uses this parable in his engaging, brilliant and provocative book The Black Swan: The Impact of the Highly Improbable to point out that human beings, and especially economists, regularly misinterpret reality and thus open the possibility for far greater dangers to dramatically disrupt society. The first edition of The Black Swan came out in 2007 and it seemed to augur the financial crisis of 2008, or at least anticipate the theoretical limitations of most specialists and therefore their inability to see the oncoming economic tsunami. Despite the millions of dollars spent on forecasting, only a small minority of professional economists actually predicted the crisis. Taleb contends that bankers, financiers and most social scientists are epistemically arrogant and lack the ability to recognize the weakness of their predictive models.

The author was born in 1960 in Lebanon. After attending the University of Pennsylvania's Wharton School of Business, he went to work on Wall Street as an options trader and quantitative analyst and is now a Distinguished Professor at New York University's Polytechnic Institute. He made very substantial sums betting against the experts in 2008. Describing debates he has had at conferences since then, he remarks: "it is hard to focus on a conversation, especially when it is mathematical, when you have just personally earned several hundreds of times the annual salary of the researcher trying to tell you that you are 'wrong' by betting against his representation of the world." Taleb's genius lies in his recognition that the blindness of financial frameworks -- such as game-oriented models -- simplify rather than explain, and leave the players unprepared for unanticipated events that can be marvellous or catastrophic depending on how one has positioned oneself in relation to the unknown.

Taleb notes that the weakness of analytical paradigms becomes evident in how an increasingly larger domain of social life -- what he dubs "Extremistan" -- produces occasional but significant disruptions such as the fall of the Soviet Union, the explosive emergence of the Internet, and the dizzying popularity of J.K. Rowling's fiction. The randomness of a significant portion of reality is counterposed by the fact that almost everything studied about social life concentrates on "Mediocristan," that is, the context of the average, the routine, the expected white swans, using "bell curve" methods of extrapolation that are ineffectual in terms of prediction.

Taleb's analysis is of interest for progressives in the Global North who have believed since the French Revolution that social reality is predictable and therefore state-driven policy can transform society. In contrast conservatives have historically argued that the negative unintended consequences of government policy far outweigh the positive intended ones. The Black Swan's analysis is harsh in its criticism of the ethics and epistemology of neoliberal economists, and also continues a tradition of conservative argument, in a manner reminiscent of 19th-century philosopher Nietzsche, to critique all attempts at forecasting whether they are state or market-oriented. In the discourse between progressives and conservatives, Taleb's is a voice for caution, pessimism and care.

In an upcoming column I will discuss the solutions that Taleb proposes in the final section of the book, prepared for a new edition published in 2010.

Thomas Ponniah is an Affiliate of the David Rockefeller Center for Latin America Studies and an Associate of the Department of African and African-American Studies at Harvard University.

Photo: Gerard Van der Leun/Flickr

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