Looking For Little Black Swans
Click on Table for full-size and details Nassim Nicholas Taleb's "The Black Swan" (Random House, 2007) has attained cult status with the hedge fund crowd. His book is about the enormous consequences of highly improbable events. The essential points are: 1. Black Swans are the highly improbable events that have had enormous historical impact- like the current credit crunch caused by the sub-prime crisis, 9/11, the Latin American debt crisis of 1982, or the fall of the Soviet Union in 1990. Though very rare, Black Swans have many times more impact than more predictable, more frequent events. Black Swans are by definition unpredictable. 2. Black Swans are not as improbable as conventional statistics theory would have us believe. This is because the way we calculate probability has always been, and continues to be based upon the Gaussian [Bell Curve] distribution, where anything beyond 3 standard deviations is considered to have a probability of less than 1 %. Black Swan dis...