The Simple Way To Start Meditation

The Black Swan metaphor has a long pedigree in the history of philosophy, where it is used to summarize the case against induction, a frowned upon practice of making categorical statements about the world based on all prior observation.  Not yet having seen a black swan is not a valid reason to conclude that all swans are white.  In fact, there are black swans, who live in Australia and seem to resent all the attention.  The term “Black Swan” is thus a shorthand for a skepticism towards claims about the future and about certitude generally, and this skepticism is in modern times associated with the philosophy of .  For induction to work, Hume showed, the future must resemble the past.  But that is something on which we cannot rely, as we see in the disclaimers in the ads for financial products.  The better parts of Taleb’s book appropriate Hume’s theory of knowledge and introduce it into the new domain of financial markets.

The lesson here is to pay no attention to the sophisticated financial models using , since these have some fatal unexpressed premises.  Among these premises is the idea that bell curves are predictive.  In fact, the models are good only to a limited degree, as they can predict the ordinary but not the irregular (p. 149), but it is precisely the irregular “fat tail” risks which should most concern us.  We ascribe the models too much power because our minds process success and failure in radically different ways. The former we credit to our efforts; the latter to outside forces (p. 152). In fact, as Taleb warns, Gaussian distributions are an intellectual fraud.   In short, we cannot predict the future but are wise to prepare for its uncertainties (p. 208).  Taleb summarizes the lesson of this application of Hume to finance:  “What you should avoid is unnecessary dependence on large-scale predictions–those and only those” (p. 203).

Had the author been content to quit there, this would have been a worthwhile, and much shorter, read.  Taleb, however, has a gift for getting off topic, excursioning all around some side routes, and then putting the whole point he’s been trying to make into a footnote, since the main discourse failed to convey it.  I can only believe that the Daily Telegraph blurb which appears on the back cover–“a rigorous meditation on the modern world”– is pure satire.  The work is not close to rigorous.  That’s part of its charm.

Taleb’s ambition is not content merely to recommend caution, unfortunately.  He wants to settle scores, attack the larger financial community, and develop a fuller theory.  A reflective skeptic would not try to develop an alternate theory about anything, because the pre-requisites of philosophical construction are disallowed their building permit under the skeptic’s code.  Taleb falls victim to this classic error of the skeptic, to wit:  to present the skeptical view as the final truth, the sole surviving doctrine after all else has been falsified.  There has always been this internal tension within skepticism, the force of which tension is directly correlated to the vigor of the skeptic.  At its most malignant stage, skepticism reduces to this truth claim:  I am certain that there is no certainty.  This is the kind of claptrap Descartes confronted in his Discourse on the Method in 1637.  It is one thing to say we must be careful of claims about the future.  It’s quite another to saythat nothing can ever be known with certitude, for this last statement is a truth claim also, but one which conveniently exempts itself.  It is not self-referential, as the philosophers say.  Skepticism always has this problem when it crosses the line from a suggestion of caution to a theory of knowledge.  When advice becomes epistemology, the whole facade is logically inconsistent. Taleb repeats this error, even though he’s aware of–in fact critical of–parallel errors in other thinkers.

Taleb jumps into this error with both feet.  The result is a personal inconsistency that runs throughout this work the way singing runs through an opera.  I expect a skeptic to behave, I dunno, skeptically?  But there’s a surfeit here of absolute claims, virulent denunciations, and winking confidences.  Any of these would be out of place in a skeptical empiricist with low tracking error.  But in Taleb’s case, these comprise the majority of the book.  In fact, I have a theory–I don’t know this for certain–that if you removed all of Taleb’s personal opinions–which he holds with religious fervor–the only thing that would be left in this text is an old family recipe for baklava.

Two quick examples must suffice, before my review winds up being longer than the original book.  First, after persuading us against the use of prediction on the large scale, Taleb goes ahead and makes some predictions, such as that bottom-up analysis of markets will prevail.

The second example is a little harder to spot, but is captured in these words from p. 148:  “If I had been a journalist, or God forbid, a historian, I would have….”  Did you catch that?  The error sneaks by here in what appears to be an aside.  We have the prediction of a future behavior based on past observations.  Isn’t that exactly what Hume has warned us against?  Having met some journalists, and some historians too, Taleb assumes that any future person with these professions will behave a given way.  What ever happened to the future not resembling the past?  What about the possibility of the historian or journalist who is original in approach?  What about the black swan?

Because of this tendency to a kind of absolutism of judgement, Taleb manages to paint white stripes on the black swan.