jaolsa, interesting comment about the 'black swan'. I listened...

jaolsa, interesting comment about the 'black swan'. I listened to an interview the other night with Nassim Nicholas Taleb who has this black swan theory and how it applied to financial markets.

From Wikipedia:

The term black swan comes from the ancient Western conception that all swans were white in color. In that context, a black swan was a metaphor for something that could not exist. The 17th Century discovery of black swans in Australia metamorphosed the term to connote that the perceived impossibility actually came to pass.

The high impact of the unexpected
Before Taleb, those who dealt with the notion of improbable, like Hume, Mill and Popper, focused on a problem in logic, in the limits of making general statements from specific observations. Taleb's Black Swan has a central and unique attribute: The high impact. His claim is that almost all consequential events in history come from the high impact events – while humans convince themselves that these events are explainable in hindsight.

One problem, labeled the Ludic fallacy by Taleb, is not enough 'bottom up' and too much reliance on generalizations (called Platonicity). That is, the unexpected is thought to be minimized through a too strong reliance on large numbers of observations (hence, the title of the book, relating to the fallacy of "all swans are white"), which assumes the nice properties of the Bell Curve. Taleb notes that other functions could very well be in order, such as the fractal, power law, or scalable distributions; the awareness of these might help to temper expectations. Taleb also argues for the use of counterfactual reasoning when considering risk.