Perhaps it is personal bias - or luck - but I seem lately to be uncovering more business-related books that interest me. Not the formulaic, feel-good, how-to-be-successful tomes, mind you, but meaty books that focus on intelligence, analytics, failure, delusions, psychology and randomness. Three years ago, I stumbled on Fooled by Randomness, by Nassim Nicholas Taleb, while browsing in Border's, and enjoyed the read thoroughly. This spring, I purchased Taleb's The Black Swan, a follow-up that examines the role of rare events with an extreme impact. I vacillate in my assessment of Taleb's prose: at one sitting, viewing his style as irreverent; at another, denouncing it as pompous. Even when the latter, however, I forgive him, for the depth and substance of his thinking certainly more than compensates for his meandering style.
Taleb's combined series, what is playfully called Fooled by a Random Black Swan, is very substantive stuff, challenging readers in philosophy, history/history of science, finance, economics, psychology and mathematics/probability. Taleb is an academic tour de force, having earned both MBA and Ph.D. degrees from prestigious schools. A one-time serious quants trader, he now appears to be more engaged in mundane scholarly pursuits.
The point of departure for Fooled by a Random Black Swan is that the human brain sees the world as less random, and conversely, more well-behaved than it actually is. We often mistake pure luck for skill, and indeed, often elevate lucky fools to guru status. We are wired for certainty, determinism and causality, even when they don't exist. We think linearly, continuously and symmetrically, elevating the bell curve to religious status.
Black swans, those events that are outliers, carry extreme impact, and are not predicted - but nevertheless explained post facto - are of much higher importance than we would like to attribute, according to Taleb. He contrasts two types of randomness, the utopian Mediocristan, which is close to equality, and behaves according to the bell curve with continuous progression; and the winner-take-all Extremistan, with extensive skewness in population values and progression in jumps. Mediocristan, typified by a population height distribution or IQ, is impervious to black swans. Extremistan, typified by a population wealth distribution or sizes of companies, is vulnerable to black swans. Alas, our lives are more influenced by Extremistan than we'd like to think.
Financial markets and trader performance are the grist for much of Taleb's randomness and black swan theorizing. He holds "acute successful randomness fools" from the investment world in highest disdain, citing arrogance and utter insensitivity to the role of pure chance in their success. Such fools almost routinely manifest the psychological flaws of overestimating the accuracy of their beliefs, of being married to their positions, of constantly rewriting history, and of denying their failures. More often than not, they regress from seven figure compensations to trader cemeteries overnight.