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Nassim Talebs case against Nate Silver is bad math

m.nautil.us

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Re: Nassim Talebs case against Nate Silver is bad math

#51

Post by MR4D »

jerf wrote: post #4

"Since Silver’s forecasts begin with probability models, it’s safe to assume they obey all the rules, including Bayes’, and would be arbitrage-free." I'll do the author the courtesy of assuming they've got a more expanded version of their argument in their head and just failed to express that, but I don't think that follows at all. I don't think there's a constraint on "Nate Silver has a probability model" that mathe…

Taleb is basically saying that Nate's model is not internally consistent.

I tend to agree, but the name-calling is a bit much.

Re: Nassim Talebs case against Nate Silver is bad math

#52

Post by ikeboy »

>The converse to the statement above is also true: if prices form a set of probabilities, then they are consistent. Since Silver’s forecasts begin with probability models, it’s safe to assume they obey all the rules, including Bayes’, and would be arbitrage-free.

I don't believe this is correct. You can lose money to arbitrage even with a calibrated model if you ignore data someone else has, or include random noise someone else isn't including, which is what Taleb's argument is.

Re: Nassim Talebs case against Nate Silver is bad math

#53

Post by Bjartr »

tshaddox wrote: post #39
andrewla wrote: post #14

As I understand it, the feud in its current form started from a tweet from Dinesh D'Souza [1] in which he interpreted Nate Silver's statement that "Dems, GOP winning House are 'both extremely possible'" to mean that they had gone from an 80% chance of winning to a 50% chance. Taleb inexplicably chose this as the hill to die on [2] and wrote a lengthy and technical paper to refute, and replied (on the [2] thread) "Whe…

Yeah, "extremely possible" is perhaps a poor choice of words, and could be interpreted uncharitably as a hedge against any outcome, but I think there's an obvious charitable interpretation too: that things that have a 20% chance of occurring turn out to occur around 20% of the time. No one would be blown away by surprise if I proclaimed "SIX!" then rolled a six-sided die and got a six, but that's even less likely tha…

Reminds me of the old essay on "Words of Estimative Probability" from the CIA

https://www.cia.gov/library/center-for-the-study-of-intellig...

Re: Nassim Talebs case against Nate Silver is bad math

#55

Post by coliveira »

eridius wrote: post #37
baddox wrote: post #27

Earlier quoted context omitted.

The best criticism I can come up with is that 538 probably doesn't do a sufficient job of explaining to its audience that their published probabilities are predictions for what would happen if the event occurred today . This seems to be one of Taleb's (and others') criticisms of their predictions: that they don't consider the probability of major unexpected events occurring between now and the event (like an athlete…

That seems like a pretty big difference to gloss over. Why are they publishing probabilities for if the event were to happen today? The event isn't happening today!

Because this is what every election poll does. Nobody asks people if they would vote in such person a year from now. They always ask what is your voting preference today. If Nate Silver did something different, then he would be completely wrong.

Re: Nassim Talebs case against Nate Silver is bad math

#56

Post by ikeboy »

baddox wrote: post #23
jerf wrote: post #4

"Since Silver’s forecasts begin with probability models, it’s safe to assume they obey all the rules, including Bayes’, and would be arbitrage-free." I'll do the author the courtesy of assuming they've got a more expanded version of their argument in their head and just failed to express that, but I don't think that follows at all. I don't think there's a constraint on "Nate Silver has a probability model" that mathe…

> I don't think there's a constraint on "Nate Silver has a probability model" that mathematically guarantees "Nate Silver's probability model" is correct If I'm understanding the article correctly, it's not talking about models being "correct," it's just talking about the probabilities of all the outcomes adding up to 100%, which means you can't place a bet that guarantees you make money regardless of the outcome. In…

If over time, your forecasts predictably change, then you can be arbitraged.

If e.g. I know that you'll have a probability below 40% at some point in the future, and I know you'll have a number above 41% at some point in the future, then it's trivial to create a strategy over time that is guaranteed to make money.

Taleb's claim, as I understand it, is that Silver is incorporating random noise into his model and so will exhibit such predictably swings, which enables arbitrage.

Re: Nassim Talebs case against Nate Silver is bad math

#57

Post by dalore »

iainmerrick wrote: post #36
jerf wrote: post #4

"Since Silver’s forecasts begin with probability models, it’s safe to assume they obey all the rules, including Bayes’, and would be arbitrage-free." I'll do the author the courtesy of assuming they've got a more expanded version of their argument in their head and just failed to express that, but I don't think that follows at all. I don't think there's a constraint on "Nate Silver has a probability model" that mathe…

I thought that bit was very well-expressed. Let’s see if I can explain what I think I understood by it... If you’re buying and selling bets on a range of events, you can only be immune from arbitrage if all your bets are mutually consistent. For example, if you’re offering 3:1 odds on event X, you can’t offer more than 1:3 on the complementary event ~X (where exactly one of X and ~X must happen). That’s pretty obviou…

Isn't Taleb arguing that his model comes being modeled during periods of relative calm. So when the black swan event does happen, that wasn't priced in as a possibility at all, creating an arbitrage there.

Re: Nassim Talebs case against Nate Silver is bad math

#58

Post by throwawaymath »

tomp wrote: post #47
ska wrote: post #32

Earlier quoted context omitted.

He remains a real charmer I see.

But is he wrong?

In regards to the very specific claim that the volatility of an option's price decreases asymptotically as the uncertainty of its underlying increases? No, that's entirely correct.

In regards to Nate Silver's forecasts more generally? I don't know - it's hard to get past the tone of his arguments to understand what his actual disagreement is.

Re: Nassim Talebs case against Nate Silver is bad math

#59

Post by trpc »

I really want to be Nassim Taleb, I don't want to get a real job, I don't want to be a slave for any kind of rules or laws whether in corporates, government or academia, I am much bigger than that, I just want to make enough money trading and shorting stocks during an economic bubble and retire young and then set myself emperor of the world and make fun of whoever I don't like such those academics who can't make 6 figure until in their 50s, of course academics are much less smarter than a stock trader, otherwise why couldn't they become rich like Taleb? right?!

Re: Nassim Talebs case against Nate Silver is bad math

#60

Post by iainmerrick »

ham_sandwich wrote: post #49

Isn’t it just one big misunderstanding between them? Taleb thinks 538’s probabilities represent a binary option price on the event, in which case, yes, the probabilities should stay very close to 50% because the vol is so high. Whereas Silver’s models are actually saying “Based on current polls, if the election were held tomorrow, then the probability candidate X wins is Y%” and are thus allowed to swing more wildly.…

Huh, yeah, that sounds very plausible.

A forecast that really did try to be an option pricing model like that would be interesting to see. It would have the advantage over a “now cast” that you could actually run the numbers and see how accurate it is. Whereas nobody can ever know what would actually happen if there were an election now rather than a year from now.

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