Saturday, July 19, 2008

Book Bundles: The Black Swan, Art of the Long View

The Black Swan (4-stars) has been a business bestseller for the past year, particularly in light of the author’s options trader background and the recent subprime mortgage crisis and continuing credit crunch crisis.

The book’s central idea is that the most consequential events that have shaped recent history and will continue to do so in the future belong to the black swan variety: they are low probability, unknown unknowns (in Rumsfeld-speak) that cannot be anticipated, and that have a disproportionately large impact.

Nassim Nicholas Taleb uses his book as a platform to discuss among other things: epistemology, the limitations of the Gaussian distribution and the law of large numbers, and the cognitive fallacies and biases present in humans (which I felt would have been better dealt with from a behavioral psychology viewpoint; see books by Gerd Gigerenzer, Gary Klein and Daniel Kahneman).

At first blush, Art of the Long View (3-stars) would seem to be antithetical to Taleb’s ideas. It is a standard business school textbook (anathema to the non-suit wearing Taleb who nonetheless has a Wharton MBA) and was written by Peter Schwartz, one of the pioneers of Shell’s scenario planning methods. One of the central ideas of Black Swan is that forecasting is doomed to failure, and this would seem to conflict with Art of the Long View.

However, as explained by Peter Schwartz, scenario planning is not about forecasting events, but of imagining scenarios and opening the mind to possibilities. My interpretation of this is that by broadening one’s perspectives through scenario planning, one develops a keener sense of what is possible. At the very least, one develops a healthy respect for the uncertainties inherent in trying to plan for the future. Being cognizant of black swan effects does not preclude efforts in contingency planning that may yet turn out to be useful. Art of the Long View is useful in that respect as it helps to ameliorate the ‘surprise’ factor of a black swan.

Ratings System

2-stars: Casual reading only, or interesting but not easily readable, or important but narrow interest material.

3-stars: Interesting, readable and ideas of some importance.

4-stars: Interesting, highly readable, and ideas of considerable importance.

5-stars: Interesting, highly readable, important material of high relevance to most people.

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