Speaking of
Black Swans,
here’s an interesting point in a review of
Nassim Nicholas Taleb’s book on that subject:
Why do we base the study of chance on the world of games? Casinos,
after all, have rules that preclude the truly shocking. And why do
we attach such importance to statistics when they tell us so little
about what is to come? A single set of data can lead you down two very
different paths. More maddeningly still, when faced with a Black Swan
we often grossly underestimate or overestimate its significance. Take
technology. The founder of IBM predicted that the world would need no
more than a handful of computers, and nobody saw that the laser would
be used to mend retinas.
—
The perils of prediction,
From The Economist print edition,
May 31st 2007
If a casino sees a black swan (a really big winner), it’s likely to
escort that person off the premises permanently, and maybe have a
few words with whichever card dealer or one-armed-bandit programmer
let that happen.
If ordinary people hear somebody saying a really destructive
event is likely to happen, they’re likely to
call him a mad dog, no matter how good his data.
Yet black swans happen.
While by their nature they’re hard to predict precisely as to time or place,
it’s good risk management to admit they can happen and to have a plan for
that eventuality.
-jsq