Just read: The Black Swan: The impact of the highly improbable

[LA_Price]

I finished this book the other day and it is one of the best I have read in awhile.

Nassim Taleb is the man and is now on my list of people I most want to play poker against.

I was trained in mathematics and have my degree in actuarial science. This book strikes at the very heart of what statisticians can and can not do.

The most important ideas of this book to me are-

The black swan problem-This is basically the idea that random "outliers" can have a dramatic effect and are impossible to forecast. They do not fall into the normal distribution and thus we often discount them in projections. As Taleb says we never learn that we never learn. Each new unexpected event is always seemed to be "predictable" because of the

Narrative fallacy- which is the idea that we construct our histories backwards. Poker players have sort of known this idea for awhile but usually use the term "results based thinking". News media are the biggest culprits, usually playing the part of the monday morning quarterback, and analyzing only the results of what happened. History could have happened in infinitely many possible ways and yet we only see one of them. He uses the example of what if there was a person who had the idea of putting secure locks and procedures on all the cockpit doors on September 19,2001? 9/11 would not have happened. This person would be a hero because they would have prevented thousands of deaths, but the problem is we would never know it or give him credit.

Ludic Fallacy- This is the idea that we can model the stock market, business projections, etc based on games. The reason this is not possible because there are two different types of randomness which Taleb calls

mediocristan/extremistan- mediocristan is sort of a "predictable randomness". For instance if I roll a fair six sided die the probability of getting any number is one in six. If I roll once I will get a random number, but we know the laws the govern dice. The results after many trials will follow very closely to the statistical predictions.

Extremistan is the type of randomness you encounter in the real world, like the stock market. We do not know the laws that govern the stock market, at least not well enough to predict what it is going to do with any great degree of accuracy. Taleb shows mathematically why it does not adhere to a normal distribution and why many Nobel Prize winning investment methods are idiotic and many expert are nothing but empty suits.

I'm going to read this one again as well but I think it(along with Fooled by Randomness) is one of the most important books I have ever read.

The part of the book I am unsure about is his investment advice where he says to put 85-90% in something like treasury bonds and 10-15% in extremely risky investments. Whether this will truly give you the highest long term expectations seems open to a lot of debate. I know nothing about investing so I'd like to hear some thoughts on this. I think what you should invest in depends a lot on your age, and what level of risk you want in your life. These seem to be the levels that he is comfortable with, but a lot of people would be willing to take a lot more risk. Some people want the largest chance to be in the extremes and are willing to risk going broke and being a nobody if they also have some chance of being rich and famous. The reward is worth it to them, even they say had a 90% chance of being broke but a 10% chance of being rich and famous the magnitude of the reward and living the high life is worth the gamble to some.

This is a very good book overall. I'm reading Overblown by Jim Mueller right now and I find that they are both talking about the same subject. How do we make and evaluate decisions in an unsure world?