Incerto 5-Book Bundle: Fooled by Randomness, The Black Swan, The Bed of Procrustes, Antifragile, Skin in the Game

by Nassim Nicholas Taleb

The landmark five-book series—all together in one ebook bundleThe Incerto is an investigation of opacity, luck, uncertainty, probability, human error, risk, and decision making when we don’t understand the world, expressed in the form of a personal essay with autobiographical sections, stories, parables, and philosophical, historical, and scientific discussions, in non-overlapping volumes that can be accessed in any order. The main thread is that while there is inordinate uncertainty about what is going on, there is great certainty as to what one should do about it.This ebook bundle FOOLED BY RANDOMNESSTHE BLACK SWANTHE BED OF PROCRUSTESANTIFRAGILESKIN IN THE GAME

Genres: Philosophy, Economics, Business, Mathematics, Nonfiction

1872 pages, Kindle Edition

Published May 4, 2021

About the author

Nassim Nicholas Taleb spent 21 years as a risk taker (quantitative trader) before becoming a flaneur and researcher in philosophical, mathematical and (mostly) practical problems with probability. 


Taleb is the author of a multivolume essay, the Incerto (The Black Swan, Fooled by Randomness, Antifragile, and Skin in the Game) an investigation of opacity, luck, uncertainty, probability, human error, risk, and decision making when we don’t understand the world, expressed in the form of a personal essay with autobiographical sections, stories, parables, and philosophical, historical, and scientic discussions in nonover lapping volumes that can be accessed in any order.

In addition to his trader life, Taleb has also written, as a backup of the Incerto, more than 50 scholarly papers in statistical physics, statistics, philosophy, ethics, economics, international affairs, and quantitative finance, all around the notion of risk and probability.

Taleb is currently Distinguished Professor of Risk Engineering at NYU's Tandon School of Engineering (only a quarter time position). His current focus is on the properties of systems that can handle disorder ("antifragile").

Taleb believes that prizes, honorary degrees, awards, and ceremonialism debase knowledge by turning it into a spectator sport.

See Wikipedia for more details.

Reviews

[Jason Duic · Rating 5 out of 5]

Instead of reviewing each book individually, I figured I'd review the whole series...

Taleb is an extremely independent thinker. He's very rough around the edges and it definitely shows in his writing. He's an expert in his field of "fat tails" (ie, extremely rare, high impact events), and will challenge your thinking on risk and uncertainty. So just on that basis, I highly recommend his work. His writing can also be quite comical at times, especially when he calls out people by name, such as former Fed chairs and calls them "fragilistas" or when he explains how the Pope is functionally an atheist.

I'll just raddle off a few points that I think are the biggest takeaways I got from this series:

1) Survivorship Bias vs The Graveyard
Taleb cites all these studies that examine the "top 10 traits of successful people/millionaires". Hard work, perseverance, intelligence...and many more traits will be cited. But what about the graveyard? What about all the people who had those traits and didn't succeed? That's survivorship bias at work.

2) Positive vs Negative Convexity (Concavity)
This is the crux of Antifragile. Convex payoffs are antifragile and have more upside than downside to extreme events. Negatively convex (concave) payoffs are fragile and have more downside than upside to extreme events.

3) Pay attention to the variation, not the forecast
If someone tells you the temperature where you're vacationing will be 70F +/-10F, you'd pack a lot differently than if they told you it'll be 70F +/-30F. We pay more attention to the variation than the forecast. The same should be true in investing. Pay attention to the tails, ensuring your survivability to the variability of the extremes. Your action should be dictated by variation and not forecast.

4) Don't be a turkey
A turkey lives for about 3 years, with every passing day believing more and more that the butcher is a nice guy that likes to feed him, not knowing that thanksgiving exists. Don't be a turkey. This also brilliantly demonstrates the concept of asymmetry of information. The butcher knows about thanksgiving. The turkey does not.

5) Mediocristan vs Extremistan
What's the difference between human height and wealth? One is from mediocristan and one is from extremistan. Mediocristan: take 100 people and measure their height, then compute the average...now take the tallest person in the world and add them and recompute the average. It won't change that much. Extremistan: take 100 people and compute their average net worth...now take and add the richest person in the world and recompute the average. It'll completely change. Physical quantities such as height and weight are from medicoristan. Socio-economic variables are from extremistan.

6) Via Negativa and Iatrogenics: We know more about what is wrong than what is right
Taleb discusses at length the concept of iatrogenics, which is when intervention (typically medical) causes more harm than good. Sometimes things are actually made better by subtraction (via negativa) than by addition of intervention. Just look a cigarette smoking.

7) Don't tell me what you think, tell me what's in your portfolio
This is the crux of Skin in the Game. Don't take advice from people who don't have exposure to the consequences of their decisions.

8) Who's Lindy?
The Lindy effect is a rule that says the the life expectancy of a non-perishable thing such as an idea or technology will be proportional to its current age (ie, the longer something has been around, the longer it'll last). Now I'm constantly looking around for things that are Lindy.

9) Ergodicity: Ensemble Probability vs Time Probability
Many people make the mistake of comparing events which possess ensemble dependence vs those with time dependence. The example he gives is how some news articles claim that "Ebola is causing fewer deaths than people drowning in their bathtubs". He explains the difference saying "your bathtub is not trying to kill you" (ie, one person dying in their bathtub does not affect another person dying in their bathtub, whereas the spreading of Ebola is multiplicative). He also explains this concept using the example of 100 people going to the casino 1 time, vs 1 person going to the casino 100 times, where, say, every 25th time, someone goes bankrupt. In the 1st case, every 25th person goes bankrupt, in the 2nd case, that person will not go to the casino a 26th or 27th or 28th time...they've gone bankrupt.

I get the sense that this is a series I'll reread many times, as I feel many of the concepts are so deep that it may take me years to fully digest them, and to see their application in everyday life.

Anyone looking for a somewhat quick, but more comprehensive summary, I recommend this video: https://youtu.be/j0OHUDerbWk

And anyone looking for more details and a quick synopsis of key concepts, and how they apply to options trading, I recommend this channel: https://www.youtube.com/channel/UCMvy...

[James L · Rating 5 out of 5]

#Book Review: Incerto Series, by Nassim Nicklaus Taleb

Fooled by Randomness, 2001
The Black Swan, 2007
The Bed of Procrustes, 2010
Antifragile, 2012
Skin In The Game, 2018

3/13/2021

Like most people, I first read "Black Swan" by Nassim Nicholas Taleb during the 2008 financial crisis. Intrigued by his unique way of thinking, I looked up his previously published book "Fooled by Randomness.” Since then, Taleb has become one of my favorite authors that I will read his next book as soon as it comes out: "Antifragile" in 2012, and "Skin In The Game" in 2018. I have been thinking about writing a review of his books for at least two years, but they are not the easiest books to summarize and simplest ideas to crystalize. Fortunately during the pandemic, I had the chance to re-read all five books, now finally felt ready to write this review.

Taleb called his five-book series "Incerto," in which he investigates luck, uncertainty, probability, opacity, human error, risk, disorder, and decision-making in a world we don't understand. He offers advices on avoiding common misconceptions and mistakes, and points out ways to take advantage and even thrive in this uncertain and ever-changing world.

Although I enjoyed much of Taleb's insights, but not sure I like the way he carries himself. Arrogant, angry, petty, self-promoting, he has committed all the offenses that he has accused other people. If you happen to disagree with him, you must be either a hypocritical academic, empty suit, or just plain stupid. I understand that some of the anger may come from the personal attacks he has received, but also think much of his wounds may have been self-inflicted.

Now with that out of the way, we then try to separate the ideas from the man. Although Taleb said good books can't be summarized, there are many overlaps between his five books. So instead of reviewing each book individually, I will try to emphasize the major points from all the books. The title of each following section reflects the underlying ideas, not necessarily corresponding to the book titles. I will try my best to reflect the author's thinking, but will also add some thoughts on my own.

1 The Black Swan: The world is uncertain, and history often jumps

The world is full of uncertainties, period. Some come from the fact we still don't understand the underlying process, like why it rains in ancient times. Others come from the nonlinearity of the process, like light rain only leaves a few puddles, heavy rain may cause a flood. But a large part of the comes from the intrinsic uncertain (aka stochastic) of the process, like tornadoes and hurricanes. With human activities, most of these uncertainties come from the complex interactions and feedbacks between independent participants, like in politics and economics, but particularly prominent in the financial markets.

Among the uncertainties, there are large jumps in both the natural and human processes. Taleb coined the term "Black Swans," which

1. Are highly improbable before the event.
2. Have an enormous impact.
3. Only explainable after the fact.

In the natural world, most progress came from "Black Swan" events. Millions of years ago, a meteoroid hit the earth and wiped out the dinosaurs, thus paving the way for the dominance of mammals, and the emergence of intelligent human beings. Taleb argues most human progress is also coming from these "Black Swan" type jumps, like disease, famine, revolution, and war. Although understandably some may argue otherwise, I mostly agree with him: history did not move forward smoothly, it often jumped. A deterministic view of history has to be tempered with the understanding of the chaotic nature historical events.

2 The Bell Curve: Our perception of the world is naive and flawed

Humans are terrified at things we can't comprehend, so we tend to imagine mystical power behind certain natural or human events. Myths, superstition, religion, in human history we have invented all sorts of ways to appease the gods and sway the outcome of the events in our way.

At the beginning of the modern era, the development of science gradually changed our understanding and perception of the natural world. Through Newton, Darwin, Faraday, Einstein, Watson, we began to developed a more rational view of the world. We started to harness molecular even nuclear energy to power the modern world. We have developed new technologies to tame the natural uncertainties, from hydraulic dams to steam engines to light bulbs to vaccines. We have achieved unprecedented growth and prosperity, and there were never so many humans on earth living ever longer and enjoying so much abundance. This progress seems to be ever accelerating and never-ending, and our record has been truly astonishing.

In the meantime, we also tried to apply the physical models of the natural world to human societies; modern political, economic, and financial theories are direct results. We have developed all sorts of social theories and economic theories, like Marxism, Socialism, Keynesian Economics, and the latest Modern Monetary Theory. Some have promoted social progress, like social democracies, but most brought unimaginable horrors, like Nazisim and Socialism. Our record on social engineering is truly disastrous, but politicians and activists of each generation still working hard at it nevertheless.

We often misunderstood the extend our perception of the world is just that, perception, not reality, and can't tell the difference. Here Taleb's rage against bell-curve is well justified and poignant. Most college graduates with liberal arts degrees can’t understand the underlying assumptions but mistook the simplified models as the real world. We often use the bell curve as the way the world should operate and left all deviations as "outliers" or "Black Swans." But in reality, these outliers are parts or maybe the essential parts of the process. As they say, "There are known knowns, there are known unknowns, but it is the unknown unknowns that are going to kill you."

3 The Expert Class: Ex-Post explanation is easy, Ex-Ante Prediction is hard, confusion about the two often harmful

Our innate desire to come up with narratives for the past events do not necessarily give us the knowledge to predict the future. Yet a particular class of people, like journalists, academics, consultants, bureaucrats, has taken the opportunities to becomes the "Experts." They utilize their superior book knowledge to explain the past more authoritatively and claim to foretell the future. Taleb has reserved his harshest criticisms against this so-called "Expert Class", actually named names like Robert Rubin, Thomas Friedman, Robert Merton, and many others. Understandably this is also the more controversial part of his writing.

One of the critical aspects of the scientific method is that a theory can't just explain the past but have to predict the future. Einstein's Theory of General Relativity predicted that gravity could bend light, which puzzled most physicists. Eventually the prediction was proven by astronomical observations, which resulted in the wide recognization of the theory, even when most people can barely comprehend the idea. But more commonly in social sciences, we have more theories that explain the past than to predict the future. In the natural world we could quickly test and discredit these theories, but in the social and economic world it is all but impossible

In quantitative modeling, one of the cardinal sins is "overfitting." Given a set of financial data, one can easily fit a complex model to explain the data. The more complex the model, the better the fit. However complex models are more likely to fit onto the noise in the data, resulted in poor ability to predict the future, let alone making any real money in the market. However, for most social and economic theories, there are no reliable ways to separate correlations from causation and check their forecasts against reality. The proponents of these models usually brushed aside these "inconvenient truths" sometimes out of ignorance, but often out of selfish interests, and defend their belligerence in the name of “Science," as Taleb calls it “Scientism.”

Thus these bad social and economic theories do not perish in realty but often adopted by particular political interests to advance their objectives, causing untold miseries to millions of people. It is safe to say that most human disasters in modern history are in the name of these social and economic theories, and the "Expert Class" often the ones who sold their souls to the devil. In recent decades with the advance of technology, the “Expert Class” managed to grows their power and control, and we are destined to see more “expert-made” disasters to come.

4 Against the Gods: Our desire to minimize uncertainty often lead to worse disasters

To minimize the uncertainties of weather, we build dams to control floods and manage irrigation, thus the beginning of agriculture and civilization. Most of the time, these risk minimizing efforts bring many benefits, until an unexpected heavy rain burst the dam and cause much more extensive damage.

We have extended our risk mitigation from the natural to the economic world, developed commodities contracts, financial instruments, insurance products, and deposit insurance. Again most of the time, these worked well and people can enjoy the benefits of a modern financial system. However, we can only spread the risk but can't eliminate them, and the relationship we relied upon for these "hedges" often fail at the worst time possible, resulting in more concentrated risk and severe loss. The 2008 Global Financial Crisis was a prime example.

The lesson learned here is not to avoid building the dam or having the modern financial instruments, but to understand the underlying assumptions and complexities and have a realistic protection against the potential losses. But that involved in deeper understanding than most people in the financial industry willing, and most are happy to go along to pass the buck. So it seems the next financial crises is inevitable.

5 Antifragile: how to benefit from uncertainty and stress

The uncertainty and stress are not all bad, and some systems need them to maintain their health and even thrive. Most common is our skeletal system; it requires constant impact and shock to maintain its strength and even become stronger, as Taleb coined the term "Antifragile." Most of the natural system that survived through time is Antifragile, since a small chance of failure will turn to certainty given enough time.

A critical feature of most Antifragile systems is that the individual components of the systems are fragile. The external shocks cause some parts to die out but other parts to flourish, thus making the whole system stronger. A free-market economy is Antifragile: individual entrepreneurs and their employees are fragile and often fail at an alarming rate, but the whole economy benefits from their dynamism and creativity. One counter-example is Japan, whose government won't let failed companies go bankrupt after the economic bubbles of 1980, resulted in the economic stagnation for the next 30 years.

Contrary to most environmentalist beliefs, the ecosystem is Antiffragle: nature tends to evolve and adapt regardless of changes, either natural or human activities. There are many other examples, one may come up with some general rules, have to leave for other future thinkers.

6 Skin In The Game: rebalance the benefit and cost of uncertainties

In ancient society, there were specific types of “Skin In The Game”. Here Taleb gives the example of the Hamarabi Code: builders will suffer death if their house fell down and killed the owner. Also during battles Kings and nobles are supposed to be on the front line, to signal their skin in the game and suffer the consequence of the defeat.

In modern society, the “Expert Class”somehow managed to avoid the negative consequence of their own mistakes. Engineers don't get punished if their machines fail, and managers don't get fired if their business went bankrupt. But most importantly, the economists and government bureaucrats who direct the economy but largely insulated from the failure of their policies. This can be seen from Marxism/Communism/Socialism failures of the past, to mask/lockdown orders of today. Thus modern society is riddled with these type of top down hypocrisy, resulted in a more profound sense of risk and failure, and general helplessness among the public.

The key is to reintroduce the skin in the game for the people and companies at the top. In Europe, the economic and political elites worked together to keep the rich and powerful stay on the top for centuries, leaving the rest of society stagnating. In the United States, free-market competition was the norm. Once-powerful companies in the SP500 index remain in the index for a much shorter period than in the past, giving room for new disruptors to raise. A chaotic yet vibrant financial market makes sure bad companies can't coast very long, and bad managers will suffer personally.

Of course, in academia, journalism, consulting, and government, “Skin In The Game” is absent by design to isolate “experts” from the consequence of their failures. So we need to be extra careful when taking their advice; it is probably far safer just to ignore them.

Applications in Finance

In finance, uncertainty is the name of the game. Even the simplest lending involves the uncertainty of default, let alone more risky ventures such as underwriting, trading, and derivatives. In 1970, the modern financial theories were created after physical science, and people finally started to think we can tame the uncertainty and risk. Unfortunately, financial models are not the reality in the markets; the extreme events and nonlinearities are not just "outliers" or "Black Swans" but very much part of the market. And the #1 rule of the game of finance was, is, and will be to survive, then prosper.

Unfortunately, modern financial theory can not eliminate the uncertainty but just move it around, sometimes into a much more concentrated and toxic form. However, most people dealing with these financial risks are not aware of the underlying assumptions and complexities, nor do they have the intellectual curiosity or ability to care, let alone to do anything about it. The subprime debt crisis in 2008 is the prime example, but we are sure it is not going to be the last one.

We are all humans with bounded rationality, self-interests, and will; thus bubbles and crashes are all but inevitable. But with modern information technology and ubiquitous trading apps, the market is getting even more active and volatile and evolving at a much greater speed. To survive and even prosper in this ever uncertain world, one would benefit significantly from Taleb's insights. These books are not perfect, sometimes rambling, often harsh, but if one can glean something from Taleb's insight, maybe even make a few bucks in the market, or avoid the next market crashes, it would be very much worth well.

[Santiago Alvarez T · Rating 5 out of 5]

The landmark five-book series about rationality, randomness, probability and philosophical ideas of the great Taleb. The five books should be read with attention, and the reader should receive Taleb's ideas and concepts in an open minded way. Taleb is a VERY arrogant kind of person through many pages of all of his books, but without a doubt the reader will be able to end up loving him.

[Phillip Christoffersen · Rating 5 out of 5]

Worth reading it all, it’s that good. In summary — to survive in a world you don’t understand, one must doubt shallow metrics for success and goals, and instead do as the ancients did to the extent possible, while aggressively budgeting the risks you do take. An ode to bravery in the proper sense — buying long options out-of-the-money. Phenomenal, Taleb is *THE* philosopher for our time.

[Ciena · Rating 4 out of 5]

Going through Taleb's books took me more than 6 years, during which another book was added to the collection.
What an astonishing era 😁

I strongly recommend getting in touch with his works.

[Yasha · Rating 2 out of 5]

Doesn't worth reading.

[Dziugas Chvoinikov · Rating 5 out of 5]

It’s pretty hard to converse with “educated” people who haven’t read Taleb

[Abe Niederhauser · Rating 4 out of 5]

It feels somewhat strange to group these books together in a set, as there is a lot of redundancy between them. Unless you’re a devoted Taleb enthusiast, I wouldn’t suggest reading them all. For most readers, I’d recommend just reading Antifragile, which is my personal favorite. Nevertheless, each book does have its own flavor.