SUMMARY
- With Thanksgiving tomorrow, what better time to revisit the classic analogy provided by Nassim Taleb in his 2007 book, The Black Swan.
- “[There is] a turkey that is fed for 1,000 days by a butcher, and every day confirms to the turkey and the turkey’s economics department and the turkey’s risk management department and the turkey’s analytical department that the butcher loves turkeys, and every day brings more confidence to the statement. So it’s fed for 1,000 days. Fatter and fatter. On the day when its comfort will be at its maximum, there is going to be a surprise. There will be a surprise for the turkey…
- Consider that the turkey’s experience may have, rather than no value, a negative value. It learned from observation, as we are all advised to do (hey, after all, this is what is believed to be the scientific method). Its confidence increased as the number of friendly feedings grew, and it felt increasingly safe even though the slaughter was more and more imminent. Consider that the feeling of safety reached its maximum when the risk was at the highest!”
- Taleb’s Thanksgiving Turkey analogy serves as a cautionary tale about the dangers of extrapolating from past trends and underestimating the potential for unforeseen, impactful events. In the context of current market conditions, it emphasizes the need for caution, diversification, and a readiness to adapt to sudden changes.
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