Friday, May 21 2010 8:30AM to 10:30AM
Margie Benbow, NC Biotech Center Charlotte
Goodmortgage.com, 3325 South Tryon Street, Charlotte, 28217
Monthly BIG Ideas Exchange
“The Black Swan: The Impace of the Highly Improbable"
Friday, May 21. 2010
Location: Goodmortgage.com, 3325 South Tryon Street, Charlotte, 28217
8:30 am to 9:00 am- Continental breakfast and networking
9:00 am to 10:30 am- Big Ideas Discussion
For May 14, we'll discuss “The Psychology of Judgment and Decision Making" and content from the book, “The Black Swan: The Impact of the Highly Improbable" by Nassim Nicholas Taleb.
As a reminder, you don’t have to read the book! The facilitator will share the main principles from the book with the group.
Rich von Gnetchen and Joe McDonough will co-facilitate this discussion.
For an excerpt from the book, go to:
During this roundtable we'll:
· share our own experiences in this area in our businesses
· share best practices from our own personal experience or from industry thought leaders
· share ideas on how to improve the area within our businesses to fuel growth
Learning Objective: How to live and act in a world we do not understand; how to come to grips with randomness and the unknown
Extreme events are more likely than we think. Taleb calls these "Black Swans" after the one-time European certainty, based on northern hemisphere experience, that all swans were white. Among the many examples he discusses are the start of World War I, the sales of the Harry Potter novels, and a turkey who spends a thousand days being well fed before being killed on the thousand-and-first day.
Taleb looks at some of the features of human psychology that make us poor at evaluating uncertainties and risks: confirmation biases, attraction to narrative explanations, epistemic arrogance, and tunneling. Other fundamental difficulties come from silent evidence, the general "problem of induction", and the nature of historical causation. And a specific issue in economics and the other social sciences is an insistence on using Gaussian distributions where they are not appropriate; here Taleb introduces the notion of Gray Swans, which we can get some grasp on using alternative tools such as fractal analysis. (The current Global Financial Crisis is a Gray Swan rather than a Black Swan.)
Taleb presents his ideas largely through narrative, anecdotes, and even a few fictional stories. This is a reasonable approach to presenting what is essentially a pragmatic way of looking at the world rather than any kind of formal system. One wonders, however, whether Taleb himself hasn't fallen victim to some of the very problems he raises — confirmation bias, attraction to narrative, and so forth. He also draws on the scientific and philosophical literature, drawing on a range of disciplines and sources, but doesn't go into any of it in depth. Given the heterogeneity of Black Swans, perhaps their deeper study will inevitably be domain specific.
Taleb is a quantitative analyst or "quant" himself and a hedge-fund manager, but he doesn't focus on finance in The Black Swan. His brief investment suggestion is a "barbell" portfolio, with 85 or 90 percent in Treasury Bills, as a defense against extreme negative events, and the rest spread across highly speculative investments such as small biotech companies, to try to catch a few extreme positive events.
There is a lot about Taleb, or "NNT" as he refers to himself, in The Black Swan. His opening example of a Black Swan, for example, is the civil war in Lebanon which disrupted his childhood, and most of his other anecdotes are also taken from his own experiences.