How people underestimate the improbable

I've never seen a black swan, but this one looks beautiful. (Photo courtesy of http://www.sxc.hu)

“The Black Swan” by Nassim Nicholas Taleb, 366 pages, Random House, 2007

by Anthony O. Alcantara

Imagine that you are a chicken. Since you were born, you had all the comforts you could ask for—warm cage, cool companions, flavored water and, of course, overflowing food.

Everyday life was like heaven. And since it was like heaven day after day, there was no reason at all for you to think that tomorrow wouldn’t be as great as today. One day, the cage opened, and you, along with some of your feathery friends, were taken out for a trip. Little did you know that you’ll end up in the dinner table of some “cruel” human beings.

Nassim Nicholas Taleb, in his book “The Black Swan,” used the turkey to illustrate the problem of how we think about risk in our lives. I just used the chicken because that’s more familiar to us Filipinos.

Absence of proof is not proof of absence. That’s the message. Too many times, we fool ourselves into thinking we know more than we actually do, according to Taleb.

He argues that most of us are not prepared for the black swan. The black swan has three distinct characteristics: it is very rare, it has a huge impact on society, and it is subject to retrospective predictability, which is reflected in our tendency to explain why events occurred as if they were all too obvious and predictable.

Remember 9/11? How about the current global financial crisis? Many pundits seem to have very intelligent explanations for these events.

Aside from what Taleb deems as the mathematical folly of the bell curve, other psychological and philosophical biases and falsehoods such as the error of confirmation, Ludic fallacy and the dangers of Plato’s pure “forms” were discussed.

It’s not an easy book to read. But it will leave you thinking about how poor we are in assessing risk and opportunities, how we foolishly simplify and categorize events in our lives. It will leave you thinking that you’ve also succumbed to some of these biases and falsehoods in the past.

Because our world is dominated by extreme and unexpected events, Taleb says we should use these black swans as the starting point in our thinking and not just sweep them under the rug of oblivion. It could save us from a lot of pain in the future.

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