The Biggest Oportunity In History (part 1 of 2)

February 12, 2008 in black swan, climate change, energy

Here’s my first post on what I think will become one of the major themes of this blog- energy.

I’m a big fan of Nassim Nicholas Taleb and his new book The Black Swan. For the uninitiated, Nassim’s big idea is that history is dominated random and mostly unknowable events he calls “Black Swans”. A “Black Swan” is a large-impact, hard-to-predict, and rare event beyond the realm of normal expectations. Nassim’s claim is that almost all consequential events in history come from the unexpected. Throw in mix of well documented cognitive biases and Nassim has described a widespread, systematic failure in our collective ability to make decisions, understand history, and make smart predictions about the future.

It is this last point- predicting the future- that most people find most interesting in Taleb’s work because predicting the future is at the core of understanding risk, which is at the core of our modern financial system. Taleb argues that black swan types of risk are incorrectly priced because of all of these reasons. Those that understand randomness and uncertainty and can make decisions with a eye towards their own inevitable cognitive failures can make a lot of money.

I believe that one of the most significant black swans in history is creeping up on us. The amazing thing is that we all know it’s coming! I believe more money will be lost and made because of it than of any other event in human history. What the hell am I talking about? Look for part 2, coming as soon as I have the chance to finish it…