Coping with black swan events[edit] The main idea in Talebs book is not to attempt to predict black swan events, but to build robustness against negative ones that occur and be able to exploit positive ones. Taleb contends that banks and trading firms are very vulnerable to hazardous black swan events and are exposed to unpredictable losses. On the subject of business in particular, Taleb is highly critical of the widespread use of the normal distribution model as the basis for calculating risk. For example, a paper produced by academics from Oxford University and based on data from 1,471 IT projects showed that although the average cost overrun was only 27%, one in six of the projects had a cost overrun of 200% and a schedule overrun of almost 70%.[9] In the second edition of The Black Swan, Taleb provides Ten Principles for a Black-Swan-Robust Society.[10] Taleb states that a black swan event depends on the observer. For example, what may be a black swan surprise for a turkey is not a black swan surprise to its butcher; hence the objective should be to avoid being the turkey by identifying areas of vulnerability in order to turn the Black Swans white.[11]
Posted on: Sun, 04 May 2014 02:19:43 +0000
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