The Black Swan – Extensively Quoted, Rarely Understood

In the last 5 seminars or talks I’ve attended every speaker has referred to the “Black Swan Phenomenon”. Interestingly not one of them mentioned the author or the book, but used general phrases, such as “the well known Black Swan Phenomenon”.

Now normally, this would be a good thing, especially since the Black Swan is a popular book and has an extremely interesting point of view that Nassim talks about. Now I’m not an economist like Nassim is, neither a financial analyst as Nassim is, nor an acclaimed author like Nassim is, and therefore have no pretense of being an expert on his theory. However, I think that I did get what he was saying. And with due respect to all of the presenters and speakers, I believe none of them did.

It’s my theory that the only reason, none of them got what the Black Swan theory is all about was because none of them bothered reading it. It was something fashionable. Thrown around at cocktail parties. And in order to not appear ignorant, one probably says “Oh yes, I completely agree”. And then when one has to make a presentation, which chances are came about, as their company was one of the main sponsors, slaps together some half baked slides. And amongst them is the Black Swan comment.

It might be a good idea , especially if you haven’t read the book to see the original author give his comments or answer to “What is a Black Swan ?”.
http://www.youtube.com/watch?v=BDbuJtAiABA
http://fora.tv/2008/02/04/Nassim_Nicholas_Taleb_A_Crazier_Future

It’s a fairly simple thought. The impact of the highly improbable. As Nassim defines it, The Black Swan has 3 properties.
1. Low  prospective predictability
2. High consequence
3. Retrospectively predictable

However, in all of the presentations and 3 were about IT Security, the speakers were suggesting that the design of the security system should cater to the possibility of a Black Swan event. By predicting the possible Black Swan events. And then calculating their probability.

Wait a minute. Isn’t that an oxy-moron ? By definition an event is a Black Swan event if it can’t be predicted. The moment an event can be predicted or projected and therefore countered, it’s a normal risk event. And can be handled using traditional risk mitigating methodologies. Another speaker used the Black Swan theory even more creatively. He actually suggested that IT budgets should be increased by x% to cater to Black Swan events.

The take away as far as I’m concerned from the Black Swan is slightly tangential. Whilst its impossible to predict its downside, it’s possible to identify companies who could benefit if such an event took place in their industry. If we’re able to identify such companies across a broad spectrum of industries, it would be like hedging your bets. It’s not only possible but very likely as in any form of wagering that nothing will happen. But if, such an event takes place and it impacts 1 of the companies I’ve wagered on. Bingo ! Downside, the total value of the wager. Upside, who knows ?

Just 1 small problem. Where the hell does one get that kind of money to wager on ? Maybe if I write a book, tentatively titled “The Blank Swan”, and pray that enough idiots buy it, thinking that it’s a sequel to “The Black Swan”, I may not need a Black Swan event to get rich.

Oops, Elie Awach beat me to it.
http://www.amazon.com/Blank-Swan-End-Probability/dp/0470725222/ref=sr_1_10?s=books&ie=UTF8&qid=1287240963&sr=1-10