The Turkey Graph

I so appreciated the hearty chuckle from my friend Jeanne when I told her about the book, The Black Swan, and how the author Nassim Nicholas Taleb, describes the Black Swan in his “turkey graph” (my term for the graph - Taleb calls the graph “one thousand and one days in history”).

So, what is this graph? Well, take one turkey and feed him every day for one thousand and one days to get him ready for Christmas. The amount of food the turkey gets every day is just about the same and he’s fed twice a day at almost the same time. The graph will be fairly flat with a few small, insignificant ups and down for the amount of food he gets… but it is just about a straight line for a thousand days. And then the surprise happens – he gets the chop and is plucked and dressed for the Christmas table.

Significantly, there is absolutely nothing in this view that would have prepared the turkey for this surprise (black swan). Every day he got fed and things progressed along really nicely. This view really begs the question of why we always/mostly base our predictions (share prices, oil prices, sales forecasts, interest rates, life events etc) on historical data?

(NB: I don’t mean to reduce the essence of this amazing book to this one graph – but it sure as hell describes the Black Swan and how blinkered we can be. I recommend this book to everyone – give yourself a little treat and buy it)