Black Swans

Let me second Brendan Nyhan’s recommendation of Nassim Nicholas Taleb’s The Black Swan: The Impact of the Highly Improbable as providing useful context for understanding the ongoing financial crisis that, on some level, was caused by people being overconfident in their ability to asses risk.

The main point is that people tend to neglect the possibility of something highly improbable happening because it is, after all, highly improbable. But the odds that something or other that’s highly improbable will happen are actually pretty good. And these highly improbable events can have huge impacts. The book’s wide-ranging but the author’s background is in finance and he illustrates with plenty of examples from that world.