The Black Swan , the impact of the highly improbable.
Nassim Nicholas Taleb. (2008 Random House International, isbn 978-0-8129-7918-3)

A most rewarding read if you are interested in creative thinking, risks, certainties and superstition. Puts you right with two feet on the ground in a very humorous manner, and most of all makes you aware of the importance of asking questions about what you don’t know. Most planning starts from what we do know, Taleb makes very clear that what counts most is what you don’t know.
If offers practical advice to make ideas work by considering the unexpected and somehow preparing for that.

A black swan is a highly improbable event with 3 principal characteristics:
*it is unpredictable;
*it carries a massive impact; and,
*after the fact, we concoct an explanation that makes the event appear less random, and more predictable than it was.
The astonishing success of Google was a black swan; so was 9/11. For N. N. Taleb, black swans underlie almost everything about our world, from the rise of religions to events in our personal lives. Ever wondered why large projects such as the Sydney Opera House (projected at 7 m AU$, cost 104 AU$ and was 10 years late!) always cost more and take more time ? It is because humans are hardwired to learn specifics when they should be focused on generalities, we are unable to truly estimate opportunities and are not open enough to rewarding those who can imagine the 'impossible' In this revelatory book, Taleb explains everything we know about what we don't know. He offers surprisingly simple tricks for dealing with black swans and benefiting from them. It changes the way you look at the world.
Many of the reasons for our blindness to thew Black Swan are because we prefer to live in mediocristan. He is not afraid to debunk the ‘double think’ like good mathemeticians leaving their money in the hands of bankers who extend their limits and in spite of the image of solidity, act as players in a casino. Something painfully becoming clear in September 2008!

Some of the themes arising out of that are:

a. We focus on preselected segments of the seen and generalize from it to the unseen: the error of confirmation.
b. We fool ourselves with stories that cater to our Platonic thirst for distinct patterns: the narrative fallacy.
c. We behave as if the Black Swan does not exist: human nature is not programmed for Black Swans.
d. What we see is not necessarily all that is there. History hides Black Swans from us and gives us a mistaken idea about the odds of these events: this is the distortion of silent evidence.
e. We "tunnel": that is, we focus on a few well-defined sources of uncertainty, on too specific a list of Black Swans (at the expense of the others that do not easily come to mind).

the book is divided in three parts, with advice what to read for the layman.

Part 1: UMBERTO ECO’S ANTILIBRARY, OR HOW WE SEEK VALIDATION, gives the reasons for a sound form of empirical skepticism, examples of black swans and where we often find them. (“Mistaking a naïve observation of the past as something definitive or representative of the future is the one and only cause of our inability to understand the Black Swan.”...

." Those who believe in the unconditional benefits of past experience should consider this pearl of wisdom allegedly voiced by a famous ship's captain;

But in all my experience, I have never been in any accident... of any sort worth speaking about. I have seen but one vessel in distress in all my years at sea. l never saw a wreck and never have been wrecked nor was I ever in any predicament that threatened to end in disaster of any sort.
E. J. Smith, 1907, Captain, RMS Titanic
Captain Smith's ship sank in 1912 in what became the most talked-about shipwreck in history.)
Part 2: WE JUST CAN’T PREDICT, explains the limits of statistical proof, the expert problem, how to predict predictions and being a fool in the right places.
He uses evidence provided by psychologist D. Kahneman that we generally take risks not out of bravado but out of ignorance and blindness to probability
“We have a paradox. Not only have forecasters generally failed dismally to foresee the drastic changes brought about by unpredictable discoveries, but incremental change has turned out to be generally slower than forecasters expected. When a new technology emerges, we either grossly underestimate or severely overestimate its importance. Thomas Watson, the founder of IBM, once predicted that there would be no need for more than just a handful of computers. ....
That the reader of this book is probably reading these lines not on a screen but in the pages of that anachronistic device, the book, would seem quite an aberration to certain pundits of the "digital revolution." That you are reading them in archaic, messy, and inconsistent English, French, or Swahili, instead of in Esperanto, defies the predictions of half a century ago that the world would soon be communicating, in a logical, unambiguous, and Platonically designed lingua franca. Likewise, we are not spending long weekends in space stations as was universally predicted three decades ago. In an example of corporate arrogance, after the first moon landing the now-defunct airline Pan Am took advance bookings for round-trips between earth and the moon. Nice prediction. except that the company failed to foresee that it would be out of business not long after.”
--Douglas Adams notices the same thing!! see predicting the future. As the saying goes “There is nothing so hard to predict as the future.”

Part 3: THOSE GRAY SWANS OF EXTREMISTAN, explains the different worlds of mediocristan and extremistan, Plato’s heritage, a different look at the Bell curve and where it should not be used (“Remember this: thew Gaussian-bell curve variations face a headwind that makes probabilities drop at a faster and faster rate as you move away from the mean, ...”) and how to get even with the black swan.
...”Anyone Can Become President

And now a brief history of the "Nobel" Prize in economics, which was established by the Bank of Sweden in honor of Alfred Nobel, who may be, according to his family who wants the prize abolished, now rolling in his grave with disgust. An activist family member calls the prize a public relations coup by economists aiming to put their field on a higher footing than it deserves. True, the prize has gone to some valuable thinkers, such as the empirical psychologist Daniel Kahneman and the thinking economist Friedrich Hayek. But the committee has gotten into the habit of handing out Nobel Prizes to those who "bring rigor" to the process with pseudo-science and phony mathematics. After the stock market crash, they rewarded two theorericians, Harry Markowitz and William Sharpe, who built beautifully Platonic models on a Gaussian base, contributing to what is called Modern Portfolio Theory. Simply, if you remove rheir Gaussian
assumptions and treat prices as scalable, you are left with hot air. The Nobel Committee could have tested the Sharpe and Markowitz models— they work like quack remedies sold on the Internet—but nobody in Stockholm seems to have thought of it. Nor did the committee come to us practitioners to ask us our opinions; instead it relied on an academic vetting process that, in some disciplines, can be corrupt all the way to the marrow. After that award I made a prediction: "In a world in which these two get the Nobel, anything can happen. Anyone can become president."

So the Bank of Sweden and the Nobel Academy are largely responsible for giving credence to the use of the Gaussian Modern Portfolio Theory as institutions have found it a great cover-your-behind approach. Software vendors have sold "Nobel crowned" methods for millions of dollars. How could you go wrong using it? Oddly enough, everyone in the business world initially knew that the idea was a fraud, but people get used to such methods. Alan Greenspan, the chairman of the Federal Reserve bank, supposedly blurted out, "I'd rather have the opinion of a trader than a mathematician." Meanwhile, the Modern Portfolio Theory started spreading. I will repeat the following until I am hoarse: it is contagion that determines the fate of a theory in social science, not its validity.” ....



Want to get an idea ?!
to get an impression of the scope of this illuminating work (might be difficult to understand because there is quite a lot in there) there are two mindmaps, a short overview and an extensive one; May wet your appetite to pick up the book yourself. Interesting and so is SKIN IN THE GAME, his most recent one,