I know a money manager who can always tell a story to explain where markets are supposedly heading. He is a good storyteller, though a rather poor investor. He is a victim of what Nassim Nicholas Taleb calls the narrative fallacy: the human desire to see the order in everything—to make a sensible yarn of what might, in reality, be unpredictable or random.

Taleb writes about the traps of logic, the formalized thought patterns, that snare most of us. In The Black Swan: The Impact of the Highly Improbable, even more than in his previous work, Fooled by Randomness, N.N.T. (as he refers to himself) ventures where he wants: politics, philosophy, finance, biology. He doesn’t much like such categories, as they heed the urge to classify. He condemns the impulse to invest the world with order, to sterilize the raw truth by fitting it in a box. People infer a “Platonicity” (a Platonic form) from the world on the basis of incomplete facts; the “silent” and contrary evidence they ignore. They conclude that evolution is miraculous, a triumph against the odds, merely because it produced them. The billions of gene combinations that didn’t occur—like the losers in history—go uncounted.

Taleb’s insights into the process of deduction are considerable, and they lead us straight back to narration. Consider this sentence: “The king died, and the queen died.” It is clumsy and unmemorable. Now this one: “The king died, and then the queen died of grief.” Note that the latter conveys more information but is somehow easier to grasp; our minds come preloaded with mental cabinetry so that storified information is easier to retrieve than random bits.

Taleb’s news is that much more of the world is random than we would have it. His argument is threaded with colorful vignettes, from his native Lebanon to points west, and sugared with literary treats. It is Taleb’s way of making his essay more interesting, more—dare I say?—narrative. So he is a teeny bit hypocritical, not to mention a tad self-important and verily argumentative. So what? He is after big game, and he bags it.

Historians figure highly among his targets, for they impose a logical design on events that, as lived, were actually chaotic. You want to know how history truly unfolded? Watch an ice cube melt into water. Okay. Now look at the puddle left by a piece of melted ice and try to determine with certainty the shape it had before melting. So much for retrieving the past, so much for historians. As for journalists, they are doubly guilty—of relentlessly narrating and inferring (unknowable) causations. N.N.T. is not fond of reviewers either. (This makes me approximately 0 for 3.) His heavy artillery is aimed at financial academics and economists, the latter because they try to forecast such stuff as market moves and interest rates. He calls them frauds. It’s as good a word as any.

N.N.T., who lives in New York and has taught at the University of Massachusetts at Amherst, previously traded derivatives on Wall Street. The academics who drive him to tears are the ones who have explained—or misexplained—his old profession. They think that markets are from Mediocristan when in fact they inhabit Extremistan.

Say what? Mediocristan is the terrain of the ordinary, the part of the world that conforms to the bell curve. It answers to statistics and knowable probabilities. Height resides in Mediocristan. You may find one 7-footer on your block, almost certainly not two. Experience (and biology) enable us to frame the odds. Weight is also from Mediocristan. Pick any 1,000 people and their average weight will be close to that of the general population (even if you include the world’s fattest person). Personal wealth, however, is from Extremistan. For instance, the average wealth of 1,000 people will be very different if one of those people is Bill Gates.

This distinction is potent. In Extremistan, past events are a faulty guide to projecting the future. Gates may be the world’s richest person, but it isn’t unthinkable that someday, someone (at Google, perhaps?) will be twice as rich. Wars also reside in Extremistan. Prior to World War II, the planet had never experienced a conflict as terrible. Then we did. Suppose you frequent a pond. Day after day you see swans—always white. Naturally (but incorrectly) you presume that all swans are white. World War II was a black swan—horrific and unpredictable.

Market crashes are black swans. Winning at blackjack is not one. The odds in casino games are known.

The finance profession has badly mischaracterized markets in such a way as to overlook the possibility of black swans. Business schools teach that risk is quantifiable—that markets resemble a casino. You will draw the bad queen once in a deck but never twice. That is why securities analysts presume to define the “riskiness” of stocks in precise, arithmetic terms. They model the future on the past. But stocks, alas, are from Extremistan.

Taleb makes much of the example of Long-Term Capital Management, a subject about which I wrote a book. The spectacular meltdown of the hedge fund, run by Nobel Prize-certified economists and intellectual heavyweights, was a primo example of faulty precision, of modeling markets according to past events. The fund’s genius managers couldn’t predict the black swan of the Russian debt default; they drew a run of bad queens, and down they went. And L.T.C.M. is merely emblematic; it is the entire profession of finance, its edifice of modern portfolio theory, and virtually every tool that financial consultants regularly rely on, that Taleb identifies as wrongheaded.

I happen to agree with him. But Taleb’s insights about probability are worthy even when applied—as in this volume—beyond the narrow realm of markets. This is an eye-opening book, one that teases our intelligence. Hidden at the edges of the pond of our daily lives, black swans linger, more prevalent than we suspect.