All of the examples that Cutten uses are in fact Gray Swans...this what Taleb says (and I quote): "some events can be rare and consequential, but somewhat predictable, particularly to those who are prepared for them and have the tools to understand them...", so while the events Cutten describes would be rare and consequential (obviously), he, and perhaps now we, are somewhat prepared for them...I believe Taleb's overarching point about the Black Swan is that you cannot really prepare yourself for it because you cannot predict it. But, by at least acknowledging this fact, you won't be just another "sucker" analyst, economist or "Gaussian-bell-curve addict" when it occurs. Just by incorporating it as an idea into your everyday thinking and for the purposes of this board, your everyday trading, you put yourself in a position to benefit from it.
I visited Taleb's site and it is organized (predictably) like my professor's offices of years past.. where there was fear of physical harm by the potential avalanche of stacks of unread papers and journals piled to the ceiling. http://www.fooledbyrandomness.com/
By that definition, has there *ever* been a black swan in the financial markets? Maybe something like the outbreak of WWI, but even then I bet some insiders knew about it. Your statement also means that things like 9/11, Oct 87, the current housing meltdown etc were not Black Swans, because some people predicted them. Maybe I mis-read his books, but I was under the impression that Taleb viewed these as Black Swans.
Here we go. Taleb on 9/11: http://www.edge.org/3rd_culture/taleb04/taleb_indexx.html Rick Rescorla (Morgan Stanley head of security at the WTC) predicting a 9/11-style air attack years in advance (after already predicting the 1993 attack in advance): http://www.youtube.com/watch?v=LA8_bteAXqk So - either the naysayers here are wrong and Black Swans are predictable, or Taleb doesn't understand his own definition. "Consider: How would an understanding of the world on June 27, 1914, have helped anyone guess what was to happen next? The rise of Hitler, the demise of the Soviet bloc, the spread of Islamic fundamentalism, the Internet bubble: not only were these events unpredictable, but anyone who correctly forecast any of them would have been deemed a lunatic (indeed, some were). This accusation of lunacy would have also applied to a correct prediction of the events of 9/11 â a black swan of the vicious variety." - Taleb Taleb is clearly wrong here - whether it was Keynes in 1919's "Economic Consequences of the Peace" and Churchill between the wars, Reagan/Thatcher/John Paul II and their advisers in the 1980s, the speculators who cleaned up during the dotcom boom, and then made even more on the way down, or any competent expert on Islamic fundamentalism, or Rescorla and others before 9/11, all of these events were predicted by someone. The fact that Taleb can not imagine that gives him no right to assume that others are incapable of predicting such events.
There are three attributes Taleb assigns to black swans: 1) They cannot be "accurately" predicted. I predict one day an alien space ship will land on the white house lawn. Two hundred years from now, it actually happens. Does that make it a black swan? Yes. Sure, I predicted it, but there is no way I can acccurately predict exactly when aliens will land on the white house lawn. What good is a prediction if there is not an accuracy component to it. That's like saying one year, the Cubs will win the World Series. Which year!!!!!! Anybody can throw shit against the wall, some of it is bound to stick. 2) After the event happens, it has to appear to be obvious in hindsight. Once aliens make contact with us, everyone will say, well of course, it was bound to happen sooner or later. 3) And the 3rd one, the event has to have significant importance. Aliens landing and making contact with us would certainly change the way we see the world and we would never be the same. Some events Taleb listed as black swans were 9/11, Google, the first World War, the computer, etc. As you can see, black swans can be both positive AND negative. I believe Taleb is very clear on his definition and I can't find where he is hypocritical. Your arguement against him cannot be, "well, we all knew that was going to happen". Really? Did we? None of the events above were accurately predicted. Sure, you can make a very broad blanket statement, one day there will be a nuclear holocaust. Then when it happens, you will say you predicted it. But the fact of the matter is, you will NEVER predict when that will happen. Saying that it will happen in the next 1000 years is not a prediction. What were some other possible black swans? The devaluation of the Deutsche Mark in 1920, the AIDS virus, the assasination of Jack Kennedy, etc.
I'll give you a brilliant planned Black Swan (longer time frame)....BofA the first to issue a bank credit card to the American public in 1958! :eek:
Worked according to my plan with todays trading as the scale out zone cleared through.....holding last 1/2 of my long term ES short position looking for any additional selling action we may encounter next week that will create a new lower trading range.
I am disagreeing with his statement that they were impossible to predict, or not predicted. He is calling things black swans when not only were they possible to be predicted, but they WERE predicted by specific people in advance. Did you even click the Rescorla link I posted up? Even ignoring Rescorla, 9/11 was accurately predicted both by the hijackers and the people who bought puts on WTC tenants in the days leading up to the attack. Thus it was not unpredictable. If it was not unpredictable, then how can it be a Black Swan? Also there is nothing in the Black Swan definition that says you have to predict the exact timing. Even Paul Tudor Jones did not know *exactly* when the Oct 87 crash would occur. It is ridiculous to say an event was not predicted just because the prediction had a wide time range. As for your other suggested "Black Swans": The devaluation of the Deutsche Mark in 1920 - wrong, it was predicted by the German government members who adopted that policy, and many competent forex speculators of the time the AIDS virus - agree, that was a Black Swan for a while, at least for the 3rd world (1st world impact was minor). The assasination of Jack Kennedy - wrong, this was predicted by the assassin and whoever was involved with him. Google - I don't see how this is a Black Swan. It was planned by its founders. Its impact was recognised very early. Hardly unpredictable. The Computer - ditto. This was a planned invention, and many people recognised its impact would be huge. The internet - very easy to predict it was gonna be a huge boom.