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Nassim Taleb: We should retire the notion of standard deviation

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Re: Nassim Taleb: We should retire the notion of standard deviation

#51

Post by corresation »

bluecalm wrote: post #16

So first about the article: >>The notion of standard deviation has confused hordes of scientists What an assertion! It also proved to be very useful for hordes of scientists... what about some examples of confused scientists ? >>There is no scientific reason to use it in statistical investigations in the age of the computer As someone who uses it daily I am eagerly awaiting his argument. >>Say someone just asked you…

Standard deviation tells you how volatile measurements are not what mean deviation is. Those are both very real life things just not the same thing."

While I am not a Taleb fan (he had his own black swan and became exactly the reviled expert his own books warn us about), your hostility in this case seems out of place.

The root of his seemingly casual contemplation is that standard deviation is simply misnamed. That this misnaming causes a cognitive dissonance that confuses even knowledgeable practitioners to mentally conflate it with the mean deviation. Which -- as someone in the financial industry -- I can absolutely confirm. It seems like such a minor thing, but the name has tremendous influence on how we parse these things, and the shortcuts we take in understanding things.

Re: Nassim Taleb: We should retire the notion of standard deviation

#52

Post by Glyptodon »

All I know is this reminds me a lot of high school where we had to always compute std dev in problems, homework, and sometimes labs, but nobody really ever explained how to interpret it. It was always like "This is std dev. This is how you compute it. Make sure you put it your tables and report."

Eventually someone (or something) did explain it, but once I understood it, it became clear that it wasn't always a sensible thing to be asked to calculate but was instead just an instinctive requirement.

Re: Nassim Taleb: We should retire the notion of standard deviation

#53

Post by bluecalm »

ThomPete wrote: post #23
bluecalm wrote: post #16

So first about the article: >>The notion of standard deviation has confused hordes of scientists What an assertion! It also proved to be very useful for hordes of scientists... what about some examples of confused scientists ? >>There is no scientific reason to use it in statistical investigations in the age of the computer As someone who uses it daily I am eagerly awaiting his argument. >>Say someone just asked you…

Context I think http://papers.ssrn.com/sol3/papers.cfm?abstract_id=970480 And I think you should pay more attention to this: "...as it does more harm than good—particularly with the growing class of people in social science mechanistically applying statistical tools to scientific problems..." if you want to understand where he is coming from.

>>"...as it does more harm than good—particularly with the growing class of people in social science mechanistically applying statistical tools to scientific problems..."

Well, for sure there are problem with people applying tools without fully understanding them. It's not very interesting statement. As obviously many things in nature form normal distribution and standard deviation describes those distributions well while mean deviation loses information about volatility. If you are going to propose abandoning of standard deviation it would be nice to give some alternative ways for handling those distributions and maybe show how using mean deviation in place where "many scientists" these days use standard deviation improve things. His study shows that people weren't able to answer his question. That could be for various reasons, like reading it too fast. It doesn't really matter. What matter are example of decisions/measurement which could be better handled by "abandoning standard deviation" or maybe showing that those people actually make financial mistakes due to not understanding the difference.

Even if he is right that many traders misuse or don't understand the term it's a problem with education and not with tools being wrong. "We should abandon standard deviation" is wider claim and to defend it you need to show how problems currently handled by using the measure should be handled in better way.

Re: Nassim Taleb: We should retire the notion of standard deviation

#54

Post by klodolph »

programminggeek wrote: post #28

I think because it's called "standard deviation" that it sounds like the thing to use or look for. It sounds more correct because of the word standard. I feel like it is the same kind of failing due to human perception of language that programmers have with the idea of exceptions and errors, especially the phrase "exceptions should only be used for exceptional behaviors". That's a cool phrase, but people latch on to…

> I think because it's called "standard deviation" that it sounds like the thing to use or look for.

Yes! Because it's an awesome trick and lets you do good estimates on napkins.

The other day I was buying lunch at a food cart and thought about how much change the food carts had to carry, as a function of how many customers they have, under the assumption that they want to be able to provide correct change to 99% of their customers.

Let's say that the average amount of change a customer needs is $5, and a 99-th percentile customer needs $15 in change. If we pretend that the distribution is approximately Gaussian we can calculate that 1,000 food carts with 1 customer each would need $15,000 in change, but 1 food cart with 1,000 customers would need $5 x 1,000 + ($15 - $5) * sqrt(1,000) ≈ $5,320. That's math you can do in your head without a calculator (being a programmer, 1,000 ≈ 2^10 so sqrt(1,000) ≈ 2^5).

The standard deviation and assumptions of normality are so useful because of the central limit theorem. That is, if you have many iid variables which have finite standard deviation the sum will converge to a Gaussian distribution as the number of variables increases.

Then you say "Well, the standard deviation weighs the tail too heavily" and the response is "well use higher order moments then, that's what they're they're for".

Re: Nassim Taleb: We should retire the notion of standard deviation

#55

Post by ThomPete »

dworin wrote: post #46
ThomPete wrote: post #23

Earlier quoted context omitted.

Context I think http://papers.ssrn.com/sol3/papers.cfm?abstract_id=970480 And I think you should pay more attention to this: "...as it does more harm than good—particularly with the growing class of people in social science mechanistically applying statistical tools to scientific problems..." if you want to understand where he is coming from.

Definitely more context, but I don't think that paper really backs up the assertion. He asked finance professionals or students, not social scientists. And he asked them at a seminar where I'm guessing they didn't have access to a calculator or computer, so it looks like a lot of them just used a rule of thumb. The question they asked reads like a trick question to me. And coming up with the right answer would have r…

His criticism aligns with my experiences. I don't have the scientific background to back those up but I do think that reality proves many of his points correct if you try to understand him instead of mis-understand him.

But like with Wolfram I can understand why his way of formulating himself might get in the way of what he is saying.

Re: Nassim Taleb: We should retire the notion of standard deviation

#56

Post by antiterra »

bluecalm wrote: post #29
tptacek wrote: post #21

Earlier quoted context omitted.

This comment was great fun to read, and I suspect that I share some of your opinions about Taleb (although mine are decaying with each day that passes since I last finished reading any of his books), but it would have been stronger as an argument if you had left off the part about him being a "vile idiot".

I just can't pass it. I gave my best at reading his book. The guy is unable to write one paragraph which doesn't contain some nonsense or serious misuse of established terms. He is insulting whole groups of people and institutions without giving any examples or research. I am pretty sure that if his stuff were posted without his name the conclusion would be obvious: it's just nonsense and very offensive at that. I re…

The guy is clearly not an idiot in the general sense; I bet he is of, at least, average intelligence. I also have my doubts that he is 'vile' for the majority of connotations and denotations of that word. Because of this, just shouting 'he's an idiot!' is vulnerable to being dismissed as hyperbole, and your baby gets thrown out with the bathwater.

You seem exasperated at his condescending attitude, but make no effort to hold higher ground. That said, even dismissing him as a 'crank' would add more substance to your argument than calling him a 'vile idiot.'

I'm not saying you have to play softball, and there are plenty of targets for your rage. Call his condescension vile, and his poorly-thought out conclusions laughable. Instead of saying he's an idiot, you can say that he's being lazy and should know better exactly because he's NOT an idiot.

Re: Nassim Taleb: We should retire the notion of standard deviation

#57

Post by Alex_MJ »

cheald wrote: post #36

I really tried to get through "The Black Swan" and Taleb's writing struck me as so pretentious and self-involved that it made it impossible for me to finish. He strikes me as someone who is so desperate to be important and recognized that an assertion like this doesn't really surprise me.

His facebook doesn't inspire a lot of confidence. It's full of vague availability-heuristic-targeting generalities.

"Virtue is when the income you wish to show the tax agency equals what you wish to show your neighbor"

"The problem is that academics really think that nonacademics find them more intelligent than themselves",

etc

I've read black swan as well, and there were parts I didn't quite grok at the time (You cannot predict a black swan! etc)

My take is that he's a Malcolm Gladwell with numbers and therefore less easily takedownable but has the same model of "hold prestigious academic position, appear wise, publish book with simple principle, be easily referenceable by people who want to sound well-read" except he has lots of math and charts to point at lest anyone call him out on it.

Re: Nassim Taleb: We should retire the notion of standard deviation

#59

Post by lisper »

bluecalm wrote: post #16

So first about the article: >>The notion of standard deviation has confused hordes of scientists What an assertion! It also proved to be very useful for hordes of scientists... what about some examples of confused scientists ? >>There is no scientific reason to use it in statistical investigations in the age of the computer As someone who uses it daily I am eagerly awaiting his argument. >>Say someone just asked you…

> One example please ? I can give hundreds when std dev is useful and mean deviation isn't.

It is ironic that you take Taleb to task for not providing an example, and then you do exactly the same thing that you are excoriating him for. Claiming that you have hundreds of examples is not the same as actually presenting one.

Re: Nassim Taleb: We should retire the notion of standard deviation

#60

Post by vidarh »

ThomPete wrote: post #50
bluecalm wrote: post #29

Earlier quoted context omitted.

I just can't pass it. I gave my best at reading his book. The guy is unable to write one paragraph which doesn't contain some nonsense or serious misuse of established terms. He is insulting whole groups of people and institutions without giving any examples or research. I am pretty sure that if his stuff were posted without his name the conclusion would be obvious: it's just nonsense and very offensive at that. I re…

Funny I find your comments to be doing exactly what they are critiquing. And I think you are letting your hate to him cloud your ability to want to understand what he is trying to say. I personally find his books mostly valid critiques of established "truths", probably because I agree with much of it. If that makes me a vile idiot I am fine with that. Each to their own.

> Funny I find your comments to be doing exactly what they are critiquing.

I was about to write the exact same thing. It is very hard to take this criticism seriously when it is written that way.

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