This book deals with our inability to expect events that may have a great impact. This is due to our inability of seeing the global picture. Our brain is made such that events are summarized, categorized according to patterns, causality, … The author highlights some common reasoning errors.
The author himself categorizes events as belonging to mediocristan and extremistan. In the first, events are mostly predictable. Events away from the average occur with very low probability. They have very low impact on the whole sample. Mediocristan’s variables can be modeled by a Gaussian. For example, the height of a person is a variable from mediocristan. Events in extremistan on the contrary are highly probable and have a large impact on the sample. A single event can change the average of even a large sample of events. Variables in extremistan are similar to fractals. There is some similitude in the probability of occurrence of an event at each scale. Someone’s income is a variable from extremistan. The repartition of income is similar when taking all the population base as when only considering the top 20% of income. The author affirms that we live in extremistan. The author refers to Mandelbrot’s work on fractals for the modelisation of extremistan variables. However, the correct model (the exponent in the fractal generation) cannot be determined as we always only have a sample of the information for a given variable.
In the remaining of the book, the author explains how to take black swans into consideration. He recommends to be very conservative as a default behavior. Being conservative means that 1) we should consider the consequences of events not their occurrence probability, 2) we should avoid investing (time, money) in activities with heavy negative consequences. Apart from that, we should devote a small portion of our resources in activities with possible large positive consequences. That is, in positive black swans.
The book is very interesting. I found it rather long toward the end. However, I recommend to read the last 5-10 pages of the book. In these pages, the author exposes how he acts in life in order to benefit from the black swans.