Impact of the highly improbable – Part 3

As said in my earlier post let us go to the pre independence era and try to identify the little black swan which triggered major changes.

 Let’s visit the Mughal frontiers – The Mughal Empire (1526 – 1858). This is how our India looked at that point of time. (Source: Wikipedia)

 And here is the flag of the Mughal Empire (Source: Wikipedia)

The above image would be familiar to those who have watched the movie “Jodha Akbar”. And what I would be telling you now is what would have been briefed in the beginning of the movie.

In 1526 Babur defeated the last of the Delhi Sultans at the first battle of panipat. The "classic period" of the empire started in 1556 with the accession of Jalaluddin Mohammad Akbar, better known as Akbar the Great. Under the rule of Akbar the Great, India enjoyed much cultural and economic progress as well as religious harmony. The Mughals also forged a strategic alliance with several Hindu Rajput Kingdoms.

The reign of Shah Jahan, the fifth emperor was the Golden age of Mughal architecture. He erected many splendid monuments, the most famous of which is the legendary Taj Mahal at Agra as well as Pearl Mosque, the Red Fort, Jama Masjid (Mosque) and Lahore Fort.

The reign of Aurangzeb saw the enforcement of strict Muslim fundamentalism which caused rebellions among the Sikhs and Hindus. Now here is where our little black swan comes into the picture.

There was absolute religious harmony at the time of Mughal Empire with its roots set strong by Akbar till the time of Aurangzeb. The black swan set its eyes on the Mughal Empire due to the strict enforcements brought by Aurangzeb. Often times we create policies without realizing the impacts it might create.

As J K Rowling says in Harry potter & the half blood prince, “Have you any idea how much tyrants fear the people they oppress. All of them realize that, one day, amongst their many victims, there is sure to be one who rises against them and strikes back!”

 

Here the Hindus and Sikhs felt oppressed but am not sure how much their rulers realized this. The impact of which was underestimated at that point of time. All looked like normal routine policy making. After all we are the rulers and why can’t we have special privileges when we protect you, was the attitude.

 

The effect of black swan may not be quick. It is like a slow poison which just sets in and when not controlled and removed at roots, might spread and cause more profound damages.

 

In the case of Mughal Empire it was a slow poison.

By early 1700s, the Sikh Misl and the Hindu Maratha Empire had emerged as formidable foes of the Mughals. Following the death of Aurangzeb in 1707, the empire started its gradual decline although the dynasty continued for another 150 years. Following 1725, the empire began to disintegrate, weakened by wars of succession, agrarian crises fueling local revolts, the growth of religious intolerance, the rise of the Maratha, Durrani, as well as Sikh empires and finally British colonialism. 

The Last Emperor, Bahadur Shah II, whose rule was restricted to the city of Delhi, was imprisoned and exiled by the British after the Indian Rebellion of 1857.

The decline of Mughal dynasty and finally its fall cannot be seen separately from the rise and end of British East India Trading Company which entered the soils of India in 1602. They are intimately connected.  The word Trading had been intentionally highlighted ;).

So let us look at how “Honourable East India Company” colloquially referred to as the John company or the Company Bahadur invaded our country and how the highly privileged company which never expected its end was dissolved.

 To be continued...

 

 

 

 

Impact of the Highly Improbable – Part 2

As said in my earlier post, Black swan is a surprise event. Something which would have a major impact and the concerned set of people are quite oblivious to its presence.

Now why would anyone be blind to such an event if it would create a major impact? The reason is complacency and denial. Like how once we establish a system we take it for granted that it would work completely fine and become complacent. And second major reason is “Denial”

As Dan Brown says in Inferno “The human mind has a primitive ego defense mechanism that negates all realities that produce too much stress for the brain to handle. It's called denial.” 

Some time we prefer to be in our comfort zone that we deny the sign which might show something different can happen. That sign is a black swan event.

Nassim Nicolas Taleb states that the theory was developed to explain,

1. The disproportionate role of high-impact, hard to predict, and rare events that are beyond the realm of normal expectations in history, science, finance and technology.
2. The non-computability of the probability of the consequential rare events using scientific methods (owing to the very nature of small probabilities)
3. The psychological biases that make people individually and collectively blind to uncertainty and unaware of the massive role of the rare event in historical affairs

This also gives you an idea as to why anyone would be blind to black swan. The reason is what has been classified as three kinds of fallacies: The Platonic Fallacy, The Narrative Fallacy and The Ludic Fallacy

•         The Platonic Fallacy – where the analyst falls into the Platonic trap of creating categories of events, and how he attempts to understand a new event in terms of the rules created for the old categories. This mainly happens because human beings tend to be in their comfort zone. For instance I take the field of auditing; it is like trying to continue the same audit procedures. The element of surprise is missing and new events which might have caused misstatement in financials might go unnoticed.

•         The Narrative Fallacy – where the analyst falls prey to explanations of information linking bits of data together, and hence does not observe some other logical link that may actually be there. Or perhaps does not observe the randomness that may actually persist while the explanation clouds judgement. Again am tempted to relate to my profession. Like how clients explains the procedures in the most convincing manner but the internal controls may not be working in the way it is being explained.

•         The Ludic Fallacy – where the analyst attempts to explain away the randomness of events in life using the probabilities attributed to games, i.e., where the probability of some event occurring is likened to the various results associated with the flipping of a coin. (Ludus is the Latin word from games.)

The theory does not say one must not look at probabilities but it only says that one must be robust and alert to events which might indicate that the improbable can happen.

Nassim Nicolas Taleb gives a very good illustration for this blindness to actual realities

Look at this sentence

A BIRD IN THE

THE HAND IS WORTH

TWO IN THE BUSH

What comes to your mind when you see this? Famous proverb…

Our brains automatically ignore the error of the word ‘the’ repeating twice and process the sentence as what it would be if written correctly, rather than just at first accepting the data for what it is, that the sentence is ungrammatical

Prejudice and preconceived notion can also be stated as reasons for being blind to black swan events.

The black swan theory can be applied in any field. Wondering what would be taken here! I would take the most interesting Indian History. Quite a big topic on its own! I would try to cover some major events and will try to identify the black swan events which triggered major changes. Those events which are so obvious now were not so obvious to the people at that time.

The little black swan fed itself in human complacency, grew and created unprecedented impacts.

Let me first divide the Indian history in the most popular way, the Pre Independence era and the post independence era.

Let’s go to pre independence era and apply the black swan theory.

Where to start?

Why not the Mughal empire 1526 – 1858? The ones who defeated the Delhi sultans! Let us go to the golden era of architecture and let us see how the ones who were at their peak lost it all.

To be continued… 

Black Swan Theory - The Impact of the highly improbable (Part 1)

What comes to your mind when you see this topic? The Black Swan movie! :) Well it was a psychological thriller. It does explain about a hidden contradictory personality and makes a quite interesting tale on its own. (Multiple personality Disorder) I am not planning to surf on that topic right now. What I would be taking you through is the Black Swan theory by Nassim Nicholas Taleb.

For those who have read the book “The Black Swan – The Impact of the Highly Improbable” this topic would be familiar. And for the benefit of others, I would take you through what the theory is all about and then try to apply it to something different, out of the usual and not to something in which the theory is generally applied.

Now my first question to you is “Can you imagine swans being black?” Majority might answer it as “No”. (Except the ones who have read the book earlier ;) or the ones who have understood the fact that things might exist thought it might not have been seen or observed currently).

Remember what Sir Arthur Ignatius Conan Doyle says in Sherlock Homes.

 “When you eliminate the impossible what ever remains however improbable must be Truth”

The term “black swan” derives from a Latin poetic expression. Its oldest known reference comes from the poet Juvenal's characterization of something being "rara avis in terris nigroque simillima cygno.” In English, this Latin phrase means "a rare bird in the lands, and very like a black swan." When the phrase was coined, the black swan was presumed not to exist. Juvenal's phrase was a common expression in 16th century London as a statement of impossibility. The London expression derives from the Old World presumption that all swans must be white because all historical records of swans reported that they had white feathers. Thus the theory of a swan being black was considered impossible

But the presumption was disproved later when a Dutch expedition led by explorer Willem de Vlamingh on the Swan River in 1697, discovered black swans in Western Australia

It is a fact that a black swan is a member of the species “Cygnus atratus”, which remained undocumented in the West until the eighteenth century

Now this is how Nassim Nicholas Taleb starts his book “The sighting of the first black swan might have been an interesting surprise for a few ornithologists (and others extremely concerned with the colouring of birds), but that is not where the significance of the story lies. It illustrates a severe limitation to our learning from observations or experience and the fragility of our knowledge. One single observation can invalidate a general statement derived from millennia of confirmatory sightings of millions of white swans. All you need is one single (and, I am told, quite ugly) black bird.”

Here we go. So “The Black Swan Theory” or Theory of Black Swan Events is a metaphor that encapsulates the concept that the event is a surprise (to the observer) and has a major impact. After the fact, the event is rationalized by hindsight. The theory was developed by Nassim Nicholas Taleb

Now here comes a question in mind as to how to identify / classify an event as a black swan event. It has some characteristics.

First, it is a surprise (to the observer or to the related set of people on whom it has an impact though others from outside might have predicted the same the concerned person is quite oblivious)

Second, the event has some major impact (which can be immediate or it would have been the seed for some further greatly impacting events)

Third, after its first recording, the event is rationalized by hindsight, as if it could have been expected (e.g., the relevant data were available but not accounted for)

According to Taleb, the highly expected not happening is also a Black Swan – as, by symmetry, the occurrence of a highly improbable event is the equivalent of the non-occurrence of a highly probable one. A small number of Black Swans explain almost everything in our world, from the success of ideas and religions, Economic booms and recessions, Dynamics of historical events to the elements of our own personal lives.

If an event is going to create such a big impact why would anyone be blind enough not to notice?

Why there is blindness to black swan events?

Would be continued in next post :)