“The Black Swan” is a thought provoking bestseller that discusses the impact of rare events on our lives and how our perception distorts reality to see what we want. These Black Swans are totally unpredictable and unconceivable for our mind, but because of the thirst of human mind to make sense of the world it always manages to find an explanation for them after their occurrence. Black Swans “inequalities are such that one single observation can disproportionately impact the aggregate, or the total.
The author explains why “the normal is often irrelevant” and how studying extremes leads to discovering the true nature of things. He also details how major progress in society tends to happen by sudden breakthroughs and by small incremental changes over time as many of us tend to believe. This becomes more and more evident in the information age.
Here are some of my favourite quotes from the book:
“Because your memory is limited and filtered, you will be inclined to remember those data that subsequently match the facts”
“Categorizing is necessary for humans, but it becomes pathological when the category is seen as definitive, preventing people from considering fuzziness of boundaries, let alone revising their categories.”
“Categorizing always produces reduction in true complexity… Any reduction of the world around us can have explosive consequences since it rules out some sources of uncertainty; it drives us to a misunderstanding of the fabric of the world”.
“What we call talent generally comes from success, rather than its opposite.”
“Mistaking a naïve observation of the past as something definitive or representative of the future is the one and only cause of our inability to understand the Black Swan.”
“Positive Black Swans take time to show their effect while negative ones happen very quickly – it is much easier and much faster to destroy than to build.”
“By a mental mechanism I call naïve empiricism, we have a natural tendency to look for instances that confirm our story and our vision of the world – these instances are always easy to find.”
“We can get closer to the truth by negative instances, not by verification! It is misleading to build a general rule from observed facts.”
“Popper introduced the mechanism of conjectures and refutations, which works as follows: you formulate a (bold) conjecture and you start looking for the observation that would prove you wrong. This is the alternative to our search for confirmatory instances.”
There are many other quotes that I can add to this humble list, but I believe it is much more worth it to simply read the entire book, especially those of you who are serious about better understanding financial markets.
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