Summary

Nassim Taleb, philosopher and statistician, introduces the concept of “narrative fallacy” in his book, “The Black Swan.” The narrative fallacy describes how flawed stories of the past shape present views of the world and expectations for the future. Man creates stories in an attempt to explain and understand the world and the events that occur in it. Man fools himself by manufacturing historical accounts of the past and then believes in them. The stories are simple and coherent. The halo effect contributes to the veracity of the story. An effective story generates an illusion of authenticity.

Many economists and financial analysts now claim they “knew” that the 2008 economic down turn was going to happen. This is a flawed statement. No one “knew” that it would happen; some thought it might happen. The crisis was not knowable. Man understands the past far less than...