Nassim Nicholas Taleb has made a lot of money from the stock markets in the past, being accredited with developing sophisticated financial instruments known as derivatives. He has also made a lot of money in the wake of the recent financial meltdown. Taleb also uses the “Black Swan” event to demonstrate how we fool ourselves into a false sense of security when it comes to analysing the world around us given the data at hand. Black Swans are highly unpredictable events with a small chance of probability, but with huge consequences when they happen. In hindsight however these events seem “explicable” and “predictable”.

Taleb argues that to characterize such events in this way is to misunderstand probability, risk and randomness. He claims that most economists misinterpret the underlying mathematics of risk and therefore are not able to correctly gauge the stock markets and other financial instruments. Surely an underlying reason as to why we face the current situation of global financial strife.

What is a “Black Swan”?