Nobel laureate Daniel Kahneman stated simply, “The Black Swan changed my view of how the world works” (Kahneman, 2011). On its face, Nassim Taleb’s masterpiece is a book about risk management in the world of finance. It is required reading in finance programs around the world, and it has influenced some of the most important names in the academic discipline and in the investment world. I argue that the intellectual legacy of the book is more fundamental than merely understanding risk management in stock and options trading. I believe it is an eye-opening expose on human understanding generally and quantitative modeling specifically, and his key points have massive implications for the uses and misuses of statistical modeling in social scientific inquiry.
A black swan is a highly improbable event with three principal characteristics: It is unpredictable; it carries a massive impact; and, after the fact, we concoct an explanation that makes it appear less random and more predictable than it was. For Nassim Taleb, black swans underlie almost everything about our world, from the rise of religions to events in our own personal lives.
Critics of The Black Swan accuse the text of being “dumbed down” in comparison to the author’s more academic works. Taleb does favor plain English to mathematical and philosophical jargon, and he does offer copious explanations and examples of his key concepts. This may cause mathematicians to pause, but it is a boon to the student trying to understand the role of highly impactful yet improbable events in the world.
Students of the social and behavioral sciences are bombarded with the ideas of normally distributed data and normal probability distributions. We are told that our models (and the associated tests of statistical significance) rely on these assumptions, but often we fail to grasp just how catastrophically wrong we often are when we violate these basic and often forgotten assumptions of social research. For the student seeking to truly grasp the point of null hypothesis significance testing and its most critical assumptions, The Black Swan is a must-read exploration of the specification and misspecification of mathematical models that seek to explain our social reality.
References
Kahneman, D. (2011). Thinking, Fast and Slow. New York: Farrar, Straus, and Giroux.
Taleb, N. (2007). The Black Swan: The Impact of the Highly Improbable. New York: Random House.