The Black Swan

Nassim Nicholas Taleb in his book "The Black Swan" explores the impact of highly improbable game changing events (the book was published at the start of the recent financial crash in 2007) and our tendency to undervalue statistical outliers in risk mitigation (like generals, we're always fighting the last war) and justify our approach in an overreliance on "normal" behavior (statistical and anecdotal). The term "black swan" is a reference to what we all know, swans are always white. The pertinent question for him is what happens when a black one shows up. Taleb postulates 3 prerequisites for "black swan" events. "First, it is an outlier, as it lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility. Second, it carries an extreme impact. Third, in spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable." The original NY Times excerpt from his book is worth reading:

‘The Black Swan: The Impact of the Highly Improbable’ - New York Times

Which, in my way of reasoning, brings us back to a recent op-ed column by David Brooks in the NY Times. As the congressional wizards deliberate over the financial carnage of the last few years, they come up with a bill to remedy the misbehavior of the larger financial institutions. David (who often seems undervalued to me by "true believer" conservatives) makes an excellent point on the track record of expert panels with regard to preventive efforts. In almost all cases, no one recognizes the black swan.

The Goldman Drama - nytimes.com

My thoughts on the next financial Waterloo waiting for us. I think the impact of sovereign debt accumulated by a slew of developed western countries to provide all matter of goodies to its citizens has yet to fully impact us. I wonder where the legislature for that little misstep is.