Friday, October 15, 2010

Book Review: The Black Swan

While travelling this week I finished Nassim Teleb's The Black Swan: The Impact of the Highly Improbable, and I give it a rating of... well... so-so.

I do so not because it lacks any good ideas - this is not the case - but because of two things.

First, the author writes with such contempt for, well, most of humanity it would seem, and with such an arrogance, that I found myself wavering between being amused and being annoyed. At times it just distracted from the book's content.

Secondly, while the book's central premise is sound, and there are a few discussions about how it can be applied, it really is a 'one idea book'. As well, like many 'one idea' books (Chris Anderson's The Long Tail and Free come to mind), the author stretches the idea a bit too far and to too many areas. e.g. Why did MS beat Apple in the early days of the PC? luck certainly played a role but to say it's the ENTIRE reason is a bit of a stretch).

On the plus side, the idea is sound. The central premise is that people fall prey to two things:
(1) They under-estimate the risk of 'black swans' - unforeseen events that disprove models and rules governing a market or force us to reexamine fundamental assumptions, and (2) that when these events occur, they can be massively larger that we anticipate.

There are many illustrative examples in the book, and many more come to mind. Models of real estate prices prior to the recent downturn; understanding of what the phone market looked like before iPhone shipped (how many planners at Motorola had that plotted on their curves? Likely none!), etc.

The author doesn't suggest that because we can't plan/forecast that we then just throw our hands up and do nothing. Rather, he suggests that we always examine fundamental assumptions, understand that models are built on simplified models, and always attempt to quantify the risk if a black swan occurs.

As someone that does silicon requirements forecasting for a living I found the book to be both useful and disheartening. Disheartening in that I can think of so many occasions that our fundamental assumptions turn out to be wrong (by 'we' I mean the entire industry), but useful in that it's given me food for thought about how to account for the unknown. To ask not just "what should our plans be?", but ask "what's the worst case if they are wrong?"

So, if after reading my warnings earlier in this review, the book still sounds interesting, then give it a go. Once you sift past the ego and the contempt, there are some useful bits there.

(Note, several people commented that the author's prior book Fooled by Randomness, is better. I haven't yet read it, but thought I'd pass that along)

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