Nassim Taleb (Black Swan) open letter to David Cameron
guardian.co.uk
Nassim Taleb (Black Swan) open letter to David Cameron
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Re: Nassim Taleb (Black Swan) open letter to David Cameron
#2"Work on building a "robust" society, capable of withstanding errors, in which the role of finance (hence debt) would be minimal. We want a society in which people can make mistakes without risk of total collapse. Silicon Valley offers a good example, where people have the chance to fail fast (and repeatedly)."
Re: Nassim Taleb (Black Swan) open letter to David Cameron
#3"Work on building a "robust" society, capable of withstanding errors, in which the role of finance (hence debt) would be minimal. We want a society in which people can make mistakes without risk of total collapse. Silicon Valley offers a good example, where people have the chance to fail fast (and repeatedly)."
Impressively scathing of both the Obama and former Bush administrations. I'm not sure how he would go about implementing some of his ideas since on one hand he argues against additional regulations and on the other he argues for a ban certain types of complex financial products (ie who would be the arbiter of what he calls a return to products that dependend on trial and error?). He is however a great writer and more importantly, he, even more than Peter Schiff was right (from an FT article that echoes some of his points in the letter and in some cases is a bit more specific - http://www.fooledbyrandomness.com/tenprinciples.pdf) :
"Then we will see an economic life closer to our biological environment: smaller companies, richer ecology, no leverage. A world in which entrepreneurs, not bankers, take the risks and companies are born and die every day without making the news."
Having been on both sides of the coin, I do wonder how much those who allocate the capital (bankers) should make relative to those who generate the ideas and innovation - but clearly in recent years, it was skewed towards the former. Lots more from Taleb at his site: http://www.fooledbyrandomness.com/
Re: Nassim Taleb (Black Swan) open letter to David Cameron
#4> It is a low-probability, high-impact event that, because of its rarity and the instability of the environment, cannot be scientifically evaluated in terms of risk and return.
I stopped reading here. The only objective evaluation of economic matters is in scientific, risk-and-return terms. Anything else is quackery, fear-mongering, or worse.
A great deal of evil has been done in the last decade or so in the name of protecting us against horrible things. We are told that much good has come of it, because nothing horrible has happened. While I'm sure this is partly true, I wouldn't mind trading a few more horrible things for a little more autonomy.
Re: Nassim Taleb (Black Swan) open letter to David Cameron
#5Unless you're an entrenched partisan, I think it's still a tad too early to call Obama's economic policies "disastrous" or "calamitous."
Re: Nassim Taleb (Black Swan) open letter to David Cameron
#6> It is a low-probability, high-impact event that, because of its rarity and the instability of the environment, cannot be scientifically evaluated in terms of risk and return. I stopped reading here. The only objective evaluation of economic matters is in scientific, risk-and-return terms. Anything else is quackery, fear-mongering, or worse. A great deal of evil has been done in the last decade or so in the name of…
I think if you put that statement in context, bin Taleb is saying that such "black swan" events can't be understood in the absence of a suitable behavioral model for the economy -- and furthermore, you don't want to rely on any global behavior models because they ultimately prove limiting. Communism anyone?
There is a lot going on in finance every day that simply cannot be objectively modeled or understood in scientific terms. That's a problem, but we also need to accept that there may not be a globally valid solution. Viewing complexity as the enemy sounds like as good an approach as any.
Re: Nassim Taleb (Black Swan) open letter to David Cameron
#7> It is a low-probability, high-impact event that, because of its rarity and the instability of the environment, cannot be scientifically evaluated in terms of risk and return. I stopped reading here. The only objective evaluation of economic matters is in scientific, risk-and-return terms. Anything else is quackery, fear-mongering, or worse. A great deal of evil has been done in the last decade or so in the name of…
Black Swan theory isn't about denying science; it's about recognizing the limits of science.
Taleb's position (and argument in this paper) is that we need to recognize instances where we don't know the answer instead of making decisions based on assumptions that we do.
Re: Nassim Taleb (Black Swan) open letter to David Cameron
#8Unless you're an entrenched partisan, I think it's still a tad too early to call Obama's economic policies "disastrous" or "calamitous."
I'm pretty sure that Taleb isn't a partisan - having also been pretty critical of Bush/Republicans (though he did point out the Obama administration's spending is magnitudes larger than his predecessor(s)). In the lead up to the crisis, Taleb was one of maybe only a couple people who not only forecasted the crisis but bet right on how it might occur. He used similarly dire language and was laughed at by many of his detractors. For this reason alone he shouldn't be so quickly dismissed.
Re: Nassim Taleb (Black Swan) open letter to David Cameron
#9> It is a low-probability, high-impact event that, because of its rarity and the instability of the environment, cannot be scientifically evaluated in terms of risk and return. I stopped reading here. The only objective evaluation of economic matters is in scientific, risk-and-return terms. Anything else is quackery, fear-mongering, or worse. A great deal of evil has been done in the last decade or so in the name of…
Black Swan theory isn't about denying science; it's about recognizing the limits of science. Taleb's position (and argument in this paper) is that we need to recognize instances where we don't know the answer instead of making decisions based on assumptions that we do.
"Taleb's position (and argument in this paper) is that we need to recognize instances where we don't know the answer instead of making decisions based on assumptions that we do."
Have you ever worked at an investment bank? I suspect you have not. Wall Street does not run on the scientific method. It runs on greed, fear and politics. The ones who check the assumptions and know the limits of their models don't have the power to make the decisions. This is the problem. And the Taleban apparently haven't yet figured it out. Quoting Janet Tavakoli: "malfeasance, not models, disrupted the global economy, and Taleb still gets that part wrong."
Last but not least: there's not such thing as a "blackswan theory". You can't steal ideas from probability theory and statistics that have been known for centuries, rename them, wrap them up nicely, and call them new or original.
Re: Nassim Taleb (Black Swan) open letter to David Cameron
#10> It is a low-probability, high-impact event that, because of its rarity and the instability of the environment, cannot be scientifically evaluated in terms of risk and return. I stopped reading here. The only objective evaluation of economic matters is in scientific, risk-and-return terms. Anything else is quackery, fear-mongering, or worse. A great deal of evil has been done in the last decade or so in the name of…
"The only objective evaluation of economic matters is in scientific, risk-and-return terms."
That's not the problem; I suggest you read up on his theories. His point is, to put it more mathematically, that using inappropriate statistical models to try to model future events can lead to catastrophe. In particular, assuming something is a normal Gaussian process when in fact it's something that's almost a normal Gaussian but has a slight propensity towards total disasters that occur more often (and much stronger) than the Gaussian distribution would imply can result in you creating a system that is terribly brittle when those "black swans" occur.
"Scientifically" applying the Gaussian distribution or other advanced mathematical constructs when they manifestly do not apply is the real quackery, if Taleb is right. And it's hard to look at the evidence and conclude he's wrong here; it's simply objective fact that many of the interesting distributions are in fact prone to "black swans", there's a statistical test that shows it (kurtosis) quite clearly. It's really more a question of what we are going to do about his point than whether or not he's correct about the distribution. (There's no guarantee that his prescription is correct, but it's probably a better idea than listening to the "experts" who advise you to mortgage to the hilt because the worst case scenario can't possibly happen and you are 99.9% percently likely to be fine. You know, that worst case scenario that just happened and we're still living through. Yeah, that scenario that can't possibly happen.)