How the folks in the finance/economics industry became turkeys?Part 1: Parable of the turkey

July 2nd, 2007

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Today, we will use the parable of the turkey from the book, The Black Swan: The Impact of the Highly Improbable by Nassim Nicholas Taleb, to illustrate the concept of the Black Swan. In essence, this parable is a subtle criticism of the prevalent way of thinking among the mainstream in the finance/economics industry. You may want to read up on our previous article, Expect the unexpected with risk models that can?t anticipate the future, which mentioned the background thinking behind the Black Swan idea. Here goes the parable…

Let’s say you are a turkey. Ever since you were born, humans had always fed you, took care of you and ensured that you were healthy and fat. In all your long life of 1000 days, humans were always your friend. Therefore, you forecast that the next 1000 days will be like the average of the past 1000 days?great care under the hands of your human friends. Life has always been good and you see no reason for otherwise in the future…

Then on the 1001st day of your life, it was the eve of Thanksgiving Day. By Thanksgiving Day, you had became a meal for humans.

Sad story. But to that poor turkey, the eve of the Thanksgiving day is the day of the Black Swan event. A Black Swan event is one in which it is highly improbable but has colossal impact.

Next, we will talk about how the folks in the mainstream finance/economics industry are like the turkey. Keep in tune!