[PLEASUREMAN]

In the aftermath of the latest real estate bubble, the media (confused as always) looked for someone who could explain to them why it happened. More accurately, they looked for someone who had predicted what would happen (this person could then become their new expert on everything). This misguided search brought them to Nassim Nicholas Taleb.

Taleb wrote two books prior to the crash, Fooled By Randomness and The Black Swan (kickback links here and here). Both books cover roughly the same philisophical ground--Taleb freely admits that in some ways The Black Swan is merely a rewrite of similar material in Fooled By Randomness--but I find both worth reading, in whichever order.

Taleb's writing is mercifully clear and lucid and far from the dry technical approach one might expect of a Wall Street quant. Taleb intersperses his writing with autobiographical snippets and fictional vignettes that illustrate a given thought, and uses colorful neologisms such as "Mediocristan" to describe the category of events in which variance is constrained (for example, human height) and "Extremistan" to describe those events which show exponential variance (for example, wealth).

His main ideas are:

• Human beings are inherently bad at estimating probability (risk), possibly due to the scale of experiences that have shaped the development of human cognitive function
  
• Our perception of current and past reality is fundamentally flawed by a tendency to diminish the role of chance in human affairs
  
• Due to imbalanced reward/risk ratios, our institutions have been maximized to the point of fragility, that is to say when something goes wrong they have a tendency to "blow up"

Due to the fallacies that govern our way of looking at things (ludic, narrative, etc.), we do not know much about the world and do not know how much we know about it. That something has happened appears to act as a very significant bias on our understanding of the world. Take for example the outcomes of the United States presidential election of 2000, the 9/11 terrorist attacks, and the aftermath of Hurricane Katrina. In each case, chance played a significant role in the outcome, and in each case these events had consequential secondary effects (on United States foreign policy, on the airline industry, on crime rates in surrounding cities). Yet pundits routinely write of these events as if they were positively determined by cause and effect, as if these events unfolded in highly controlled environments with a minimum of variables.

In fact, as Taleb writes, it is precisely the rare, unforeseen event (or unintended consequence) which has the greatest impact on us, by virtue of our failure to plan for it in our highly fragile society. Yet we routinely understate or exclude entirely the impact of rare events on both our forecasts and our interpretations of the past--we call them statistical outliers or unanticipated developments and then continue developing models which by design assume that unforeseen events will not occur in the future.

It has been proven that when you give someone a map and tell him that it contains errors, he will still attempt to use the map without any ability to determine the scope or importance of error. This says something interesting about the human mind and how it has developed over the course of thousands of years. We would rather have the map than nothing, perhaps because there is a possibility (which we cannot determine) that the map will help us, which outweighs the possibility (again unknown) that it will appreciably hinder us. Many systems of thought fall into this category.

If you have ever paid attention to an investment advertisement or spiel, you are familiar with the stock caveat given near the end, that "past results do not guarantee future returns". It is a pity that the entire investment community appears to behave as if this warning is meaningless. To the contrary, it appears that nearly all investment activity proceeds from the assumption that events are highly predictable and that returns can be estimated with a very high degree of likelihood. And yet, as Taleb observes, it is fairly commonplace on Wall Street for traders to "blow up", that is lose everything on a series of bad investments.

In Fooled By Randomness, Taleb notes that mediocre pundits tend to argue that the cautious investment strategy he advocates fails to deliver high rewards when things go well (he names George Will, that paragon of mediocre conservatism). This of course misses the point in spectacularly stupid fashion, since the high rewards are only possible due to taking on foolish levels of risk and leverage (and it ignores the many investors who take huge risks and blow up without ever making a fortune in the first place).

Moreover, we have little reason to believe that traders who are extremely successful succeed because they are smarter, more capable, and more discerning. Such exceptional successes may well be determined by chance--it is the same as saying that if 100 people played roulette for an hour with the injuction to bet half their remaining stake on each turn of the wheel, there is a set probability that one or more of them would emerge at the end with an enormous profit. This does not mean that they played roulette more skillfully than the others, only that the odds happened to play in their favor. After one such session, you could determine the outcome of alternate realities on a computer (including the unlikely but still possible outcome of a player winning every single turn).

The difference between real life and a casino game is that in real life we have much, much less information about the variables and the amount of randomness at play, yet strangely this makes us more confident. Should we then strive to acquire as much information as possible? Not so fast--there really is such a thing as too much information, as Taleb notes.

Nassim Taleb:

Show two groups of people a blurry image of a fire hydrant, blurry enough for them not to recognize what it is. For one group, increase the resolution slowly, in ten steps. For the second, do it faster, in five steps. Stop at a point where both groups have been presented an identical image and ask each of them to identify what they see. The members of the group that saw fewer intermediate steps are likely to recognize the hydrant much faster. Moral? The more information you give someone, the more hypotheses they will formulate along th eway, and the worse off they will be. They see more random noise and mistake it for information.

The applicability of this passage to the world of politics is too pathetic for words. It often appears that it is those who are most immersed in ideology and political debate who develop the most fragile and error-prone politics (and who consequently expend their energy on the least relevant issues facing society).

There are many more insights in Taleb's books, but the theme of epistemic arrogance--the irrational belief that we are on sounder ground than we are--runs throughout (human reason in general takes a sound beating). While I know little about Taleb's politics, I find in his ideas some reinforcement of a conservative or traditionalist outlook as opposed to a novelty-seeking liberal one, because the true conservative approaches problems of governance from a humbler and more cautious perspective, and is more concerned with a stable outcome as opposed to a perfect (i.e. highly maximized yet fragile) utopia. In point of fact, the Conservative politician David Cameron has echoed many of Taleb's points and the two have appeared together to discuss the best government response to the ongoing financial difficulties (Taleb has expressed "despair" over Obama's reaction to the crisis).

Of course one does not expect that Taleb will find a similar soulmate among American politicians, but American conservatives (or, as I find myself increasingly describing myself, traditionalists) will find in some of Taleb's ideas justification for the cautiousness and concern for robustness that is inherent in conservative ideology. Taleb does not argue for the elimination of all risk, and much of what he says has less bearing on social conservatism and cultural institutions (although I find it to still have some relevance). But the realization that we as a society face hidden risks, and that social upheaval greatly magnifies these risks, would provide a welcome injection of reason and wisdom into a very silly and anti-intellectual discourse.

[PLEASUREMAN]

Some other good videos featuring Taleb:

Nassim Nicholas Taleb: A Crazier Future (FORA.tv)

Nassim Taleb and Daniel Kahneman: Reflection on a Crisis (FORA.tv)

Nassim Taleb being ignored by clueless British journalists

[Jeff Fries]

PLEASUREMAN, 12 February 2010 - 06:19 PM:

Nassim Taleb being ignored by clueless British journalists

Asian pantsuit: Yes I AM a rawyer
Taleb:

[PLEASUREMAN]

my favorite part is Taleb, exasperated, saying, "Let me start from scratch..."

[Türschloss]

Taleb should issue abridged editions of his books ... without the narcissism. What a flaming prima donna. MY FAMILY WAS SORT OF A BIG DEAL (IN LEBANON). Just makes people want to punch him in the kidneys 'til he pisses blood. Which is a shame. Because he has a lot of worthwhile things to say. Absent the narcissism, his books would be half as long and equally worthwhile. Taleb isn't gay, is he?

Quote

While I know little about Taleb's politics, I find in his ideas some reinforcement of a conservative or traditionalist outlook as opposed to a novelty-seeking liberal one, because the true conservative approaches problems of governance from a humbler and more cautious perspective, and is more concerned with a stable outcome as opposed to a perfect (i.e. highly maximized yet fragile) utopia.

Russ Roberts interviewed Taleb not long ago:

http://www.econtalk....g/nassim_taleb/

He describes himself as a "Hayekian"--a writer more often quoted on the Right than on the Left--which seems about right. Both he and Hayek (and Burke before them) saw the limits of human reason as central to human affairs. I doubt that you could accurately describe Taleb as a Man of the Left. His political orientation likely has more to do with the political landscape in Lebanon than in the West, so it is unlikely that his politics map nicely onto an American landscape. But that my change as his notoriety increases with the success of his books and articles in the West.

The interviews are also noteworthy for the absence of his trademark narcissism. He is perfectly capable of interacting like a normal person in unscripted moments.

[PLEASUREMAN]

I think his writing is influenced by the desire to settle some scores. It doesn't strike me as narcissistic so much as showing an extreme irritation with mainstream pundits (like George Will) who tend to be self-important and dismissive of much more profound thinkers. But more than anything else I suspect it is a cultural thing--he has a more aggressive manner than we are accustomed to. (I admit it wouldn't shock me to learn that he thinks he is a pretty big deal.)

Despite his celebrity, the core of his criticism of modern institutions has been totally ignored. I think it is the case that the more radical the diagnosis, the less interested mediocrities are in listening to it, and from the point of view of contemporary politics the idea of robustness vs. efficiency is quite radical. Every lever we have is designed to increase efficiency and maximize output and improve scores, etc. It is a mania.

[PRCalDude]

Quote

In Fooled By Randomness, Taleb notes that mediocre pundits tend to argue that the cautious investment strategy he advocates fails to deliver high rewards when things go well (he names George Will, that paragon of mediocre conservatism). This of course misses the point in spectacularly stupid fashion, since the high rewards are only possible due to taking on foolish levels of risk and leverage (and it ignores the many investors who take huge risks and blow up without ever making a fortune in the first place).

What is this strategy? I might have to try it.

Quote

If you have ever paid attention to an investment advertisement or spiel, you are familiar with the stock caveat given near the end, that "past results do not guarantee future returns". It is a pity that the entire investment community appears to behave as if this warning is meaningless.

Apropos to this, I was in the bookstore last night and my wife wanted to get some books on family finance and investing. I told her, "Honey, I wish I knew which books to get. Most of them tell you to have a high savings rate, buy monthly to take advantage of dollar-cost averaging, and diversify. Unfortunately, no matter how much you did these things in the previous decade, you would have been far better off putting your money in your mattress than investing it in the stock market."

Most of these investment gurus make money by selling investment advice, not by succeeding with their investments. The examples are too numerous to list here. Most of them are flat wrong most of the time.

The fact is that you will make money as long as the DJIA is going up. You will lose money if the DJIA goes down. Very few people perform better than the DJIA (or S&P 500). Those that do are guys like Warren Buffet, and when they screw up they have enough money to pull the levers of power and get themselves bailed out.

The little guy doesn't.

I was tempted to buy "The Black Swan" last night but was insulted by the $28 price of the hardcover. I might kindle it.

Quote

we call them statistical outliers or unanticipated developments and then continue developing models which by design assume that unforeseen events will not occur in the future.

I think the problem is that you have no a priori way of knowing the probability distribution function of, say, a bunch of Arabs going on a jihad and flying a plane into a building. If you did, you could throw it into your models. Otherwise, you can't. Ergo, I don't think there really is a way to add black swans into your models.

Besides, enough bad inputs and assumptions are put into models in the first place (google: gaussian coppola function) that we shouldn't be trusting them anyways. Even Austrian economists, who have a simplified common-sense based economics, will tell you a myriad of different things depending on who you ask. Peter Schiff, for example, has been screaming "HYPERINFLATIONBUYGOLDNOW!11" for about 30 years and has lost his clients a lot of money. But that's another tangent.

[PLEASUREMAN]

When people have asked him (usually on finance shows) what to invest in for the next six months to a year, Taleb's answer is always, "I don't know." This gets back to his argument that we are currently highly overleveraged and overmaximized and therefore it is impossible to tell how or where this might cause the system to break again. Under such circumstances, any investment is highly risky over an indeterminate period (note: people will still win at roulette).

By its nature a crash is unpredictable as to its proximity. Presumably many people "knew" that the real estate bubble was going to pop eventually, but their investment strategies called for them to take maximum advantage of it in order to report good returns (and pocket huge bonuses). When you "know" something yet your bevavior is indistinguishable from your behavior if you did not know it, then how meaningful is it to claim that you knew it?

Often we only know that a pattern of events has continued...so far. This works until the pattern is broken by a rare event. Then we have a new pattern, with a rare event at the end. Until something else changes.

Taleb does not spell out a particular series of moves to protect oneself from Black Swans, but as with the Austrian school advocates common sense guidelines, such as determining which areas of the economy are Black Swan vulnerable and which aren't. When an investment area exposes one to higher risk of disruption from rare events, one should adopt a more cautious, bet-hedging trading strategy. This goes back to his distinction between Mediocristan and Extremistan.

One thing he does say in The Black Swan is that he does not mind many little losses in his investments, which are covered by a few large returns. He favors an approach that benefits from Black Swans, mixing a large number of safe bets (such as Treasuries) with a lesser number of extremely high risk bets, which is the traditional conservative approach to the market. He goes into this more in Chapter 13 of the book.

His point regarding rare events is not that you try to predict them, but that you make sure you are robust against them. A highly leveraged investment strategy, for example, is very exposed to Black Swans, which has long been common knowledge yet people do it anyway. With 9/11 the failure was not in predicting that someone would fly a plane into the World Trade Center, it was in failing to have a (good, effective) anti-terrorist defense despite many years of knowing that terrorist attempts were an inevitable fact of life given America's foreign policy. Lebanon, the U.S.S. Cole, the original WTC bombing, and other such attacks should have long since galvanized the intelligence community to put its resources into anti-terrorist activity and to dramatically increase oversight of Islamic foreign nationals coming into the United States.

By the way The Black Swan is $18 on Amazon, $10 for the Kindle version. Who is selling it at list price?

[PRCalDude]

Quote

Taleb's answer is always, "I don't know." This gets back to his argument that we are currently highly overleveraged and overmaximized and therefore it is impossible to tell how or where this might cause the system to break again. Under such circumstances, any investment is highly risky over an indeterminate period (note: people will still win at roulette).

The government has determined that one asset class, at least, MUST BE SUPPORTED AT ALL COSTS (housing). FHA is currently issuing loans like candy to low-IQ mouthbreathers who believe the US government can't possibly default on its debt.

Quote

mixing a large number of safe bets (such as Treasuries)

These might be safe in the short term. In the long run (meaning, the next 10 years), I wouldn't bet on them. In addition to being overleveraged and overmaximized, our politicians and financiers are also extremely undisciplined. Actually, the latter is probably the cause of the former. I wouldn't call the US defaulting on its debt like Greece in the future a black swan. Owing to a lack of discipline also, like you said, there will be no long-term planning for future black swans in the finance industry or in government fiscal policy.

Quote

Who is selling it at list price?

Borders. I think I'll kindle it. Too bad MacDonald isn't available in kindle format.

[oni]

I kept passing this book up because the thesis seemed obvious but based on this review may pick it up next time I'm looking for airplane reading material. 'Black Swan' events (I hate that moniker) are by nature improbable and can't be priced into models, however systems can be built robust enough to survive them. This kind of thing also applies to Global Warming and climate modeling, or any kind of complex system modeling for that matter.

One question, is this one of those books that ought to be a long essay but have been made book-length with filler?

[PLEASUREMAN]

oni, 13 February 2010 - 11:22 PM:

I kept passing this book up because the thesis seemed obvious but based on this review may pick it up next time I'm looking for airplane reading material. 'Black Swan' events (I hate that moniker) are by nature improbable and can't be priced into models, however systems can be built robust enough to survive them. This kind of thing also applies to Global Warming and climate modeling, or any kind of complex system modeling for that matter.

One question, is this one of those books that ought to be a long essay but have been made book-length with filler?

To me it was interesting because I concluded a few years back that our society (not just financial) was drastically over-maximized and that this was destroying quality of life...ultimately that problem relates back to scale, which is another thread entirely. Taleb looks at different aspects of what is the main limitation of human reason, its epistemic arrogance or overconfidence in the predictive power of the small amounts data it has access to. (This becomes most problematic when managing systems that belong to Extremistan.)

But more than that I believe it is a sustained attack on our cognitive elite who have run our society aground and continue to mismanage it in many ways and despite their track record of error are confident that now they know what to do. It is an arrogance exemplified by Alan Greenspan who took great pride in avoiding small domestic crises only to create a massive international crisis.

Yes, it is somewhat obvious (moreso after the fact) that you shouldn't over-leverage, that there is a cost to over-maximization, that this can lead to fragility. However I do not believe that people have truly learned the lesson, or for that matter can apply it to other areas of life besides the financial. What was the response to the economic downturn? Our "leaders" attempted to goose consumption, which of course is a huge part of the problem (it is at an unsustainable level). Much of The Black Swan is concerned with teaching how to understand which systems are vulnerable to rare events, why human beings make the same mistakes over and over again, and to rearrange one's thinking so that one is less susceptible to seductive theories that promise impossible things and put us on a dangerous course.

[Stiva]

Ironic that Taleb's critics take him to task for his occasional superficial arrogance while ignoring his radically humble take on the limits of human knowledge. Bragging about your interest in philosophy is chicken feed compared to believing you can steer national economies prudently, which no one objects to.

I liked the part in Fooled by Randomness where he talks about a hypothetical high-yield bond trader whose early lucky successes make him think he's a genius, so he goes on taking bigger and bigger risks until finally he loses every cent he ever made and more in a market correction. It's not the mode, it's the mean.

This morning a senior guy at the company I work for (I'm in finance, though not in any sort of fancy Gordon Gekko role) was telling me about meeting Ken Griffin, the founder of the Citadel hedge fund group. He said his two main impressions of the guy were: 1) the types of investing skills most guys just front, he actually had, and 2) he took his business too seriously to have an ego about it. He was willing to admit mistakes, engage with his critics, and change his thinking when it became clear he was wrong. Being willing to admit you're wrong or that you don't know might not be a sign of intelligence by itself, but the absence of it is an invitation for the gods to smack you down a few pegs.

Speaking of all this I'll admit I'm curious to see how the new Wall Street movie plays out. I don't expect much from Shia LaBeouf (I've never met anyone who will admit to liking him, yet he's in every other major release) but hopefully he'll be balanced by Carey Mulligan (whose debut in An Education had shades of Hepburn in Roman Holiday). Mostly I'm curious if it will succeed at all as a critique, or if it will (like the original) just wind up making finance look cool and glamorous for people who are eager to miss the point.

/rambling

[PRCalDude]

pman,

How do you insert .pdfs? From Niall Ferguson's latest article:

Quote

Great powers and empires are, I would suggest, complex systems,
made up of a very large number of interacting components that
are asymmetrically organized, which means their construction more
resembles a termite hill than an Egyptian pyramid. They operate
somewhere between order and disorder—on “the edge of chaos,” in the
phrase of the computer scientist Christopher Langton. Such systems
can appear to operate quite stably for some time; they seem to be in
equilibrium but are, in fact, constantly adapting. But there comes a
moment when complex systems “go critical.” A very small trigger can
set oª a “phase transition” from a benign equilibrium to a crisis—a single
grain of sand causes a whole pile to collapse, or a butterfly flaps its wings
in the Amazon and brings about a hurricane in southeastern England.
Not long after such crises happen, historians arrive on the scene.
They are the scholars who specialize in the study of “fat tail” events—
the low-frequency, high-impact moments that inhabit the tails of
probability distributions, such as wars, revolutions, financial crashes,
and imperial collapses. But historians often misunderstand complexity
in decoding these events. They are trained to explain calamity in
terms of long-term causes, often dating back decades. This is what
Nassim Taleb rightly condemned in The Black Swan as “the narrative
fallacy”: the construction of psychologically satisfying stories on the
principle of post hoc, ergo propter hoc.

This post has been edited by PRCalDude: 02 March 2010 - 08:42 PM

[PLEASUREMAN]

Most of what Taleb talks about seems like it would be obvious, such as that the frequency of a gain or loss is not important without knowing the magnitude--but then we see traders pursuing reckless, fragile trading strategies and overleveraging for a few years, then blowing up spectacularly because they did not take into consideration the magnitude of the downside they were trading into.

This is similar to those ridiculous betting strategies hawked by mathematically illiterate people such as the Martingale system (in simplest form, double your bet after each loss). The suckers who believe in these systems do not realize that since the expectation in the game is still negative, no betting strategy can ever make a difference, and someone who applies Martingale long enough will eventually blow up and lose everything.

Again, so simple it is hard to believe we need books to tell educated professionals about these elementary facts. Yet such is the blindness and hubris in the financial world and elsewhere.

[PLEASUREMAN]

Some selections from Fooled By Randomness:

Nassim Taleb:

In people's minds lower prices are far more "volatile" than sharply higher moves. In addition, volatility seems to be determined not by the actual moves but by the tone of the media. The market movements in the eighteen months after September 11, 2001, were far smaller than the ones we faced in the eighteen months prior--but somehow in the mind of investors they were very volatile. The discussions in the media of the "terrorist threats" magnified the effect of these market moves in people's heads. This is one of the many reasons that journalism may be the greatest plauge we face today--as the world becomes more and more complicated and our minds are trained for more and more simplification.

On the ephemeral nature of positive and negative feedback:

Nassim Taleb:

Several branches of research have been examining our inability to learn from our own reactions to past events: For example, people fail to learn that their emotional reactions to past experiences (positive or negative) were short-lived--yet they continuously retain the bias of thihnking that the purchase of an object will bring long-lasting, possibly permanent happiness or that a setback will cause severe and prolonged distress (when in the past similar setbacks did not affect them for very long and the joy of the purchase was short-lived).

On our narrative view of history:

Nassim Taleb:

Experts call one manifestation of such denigration of history historical determinism. In a nutshell we think that we would know when history is made; we believe that people who, say, witnessed the stock market crash of 1929 knew then that they lived an acute historical event and that, should these events repeat themselves, they too would know about such facts....When you look at the past, the past will always be deterministic, since only one single observation took place. Our mind will interpret most events not with the preceding ones in mind, but the following ones.

On novelty and invention:

Nassim Taleb:

The argument in favor of "new things" and even more "new new things" goes as follows: Look at the dramatic changes that have been brought about by the arrival of new technologies, such as the automobile, the airplane, the telephone, and the personal computer. Middlebrow inference (inference stripped of probabilistic thinking) would lead one to believe that all new technologies and inventions would likewise revolutionaize our lives. But the answer is not so obvious: Here we see and count the winners, to the exclusion of the losers....People tend to infer that because some inventions have revolutionaized our lives that inventions are good to endorse and we should favor the new over the old. I hold the opposite view. The opportunity cost of missing a "new new thing" like the airplane and the automobile is minuscule compared to the toxicity of all the garbage one has to go through to get to these jewels (assuming these have brought some improvement to our lives, which I frequently doubt).

Now the exact same argument applies to information. The problem with information is not that it is diverting and generally useless, but that it is toxic.

On randomness and careers:

Nassim Taleb:

And, at any point in time, the richest traders are often the worst traders. This, I will call the cross-sectional problem: At a given time in the market, the most successful traders are likely to be those that are best fit to the latest cycle. This does not happen too often with dentists or pianists--because these professions are more immunte to randomness.

On fitness:

Nassim Taleb:

Recall that someone with only casual knowledge about the problems of randomness would believe that an animal is at the maximum fitness for the conditions of its time. This is not what evolution means; on average, animals will be fit, but not every single one of them, and not at all times. Just as an animal could have survived because its sample path was lucky, the "best" operators in a given business can come from a subset of operators who survived because of overfitness to a sample path--a sample path that was free of the evolutionary rare event. One vicious attribute is that the longer these animals can go without encountering the rare event, the more vulnerable they will be to it.

On perception of loss:

Nassim Taleb:

Psychologists recently found out that people tend to be sensitive to the presence or absence of a given stimulus rather than its magnitude. This implies that a loss is first perceived as just a loss, with further implications later. The same with profits. The agent would prefer the number of losses to be low and the number of gains to be high, rather than optimizing the total performance.

[PRCalDude]

Türschloss, 13 February 2010 - 02:29 PM:

Taleb should issue abridged editions of his books ... without the narcissism. What a flaming prima donna. MY FAMILY WAS SORT OF A BIG DEAL (IN LEBANON). Just makes people want to punch him in the kidneys 'til he pisses blood. Which is a shame. Because he has a lot of worthwhile things to say. Absent the narcissism, his books would be half as long and equally worthwhile. Taleb isn't gay, is he?

Quote

While I know little about Taleb's politics, I find in his ideas some reinforcement of a conservative or traditionalist outlook as opposed to a novelty-seeking liberal one, because the true conservative approaches problems of governance from a humbler and more cautious perspective, and is more concerned with a stable outcome as opposed to a perfect (i.e. highly maximized yet fragile) utopia.

Russ Roberts interviewed Taleb not long ago:

http://www.econtalk....g/nassim_taleb/

He describes himself as a "Hayekian"--a writer more often quoted on the Right than on the Left--which seems about right. Both he and Hayek (and Burke before them) saw the limits of human reason as central to human affairs. I doubt that you could accurately describe Taleb as a Man of the Left. His political orientation likely has more to do with the political landscape in Lebanon than in the West, so it is unlikely that his politics map nicely onto an American landscape. But that my change as his notoriety increases with the success of his books and articles in the West.

The interviews are also noteworthy for the absence of his trademark narcissism. He is perfectly capable of interacting like a normal person in unscripted moments.

I reluctantly agree after reading about a quarter of the way through the book.

Taleb's narcissism and obsession with name-dropping obscure philosophers is ironic given his thesis on the limits of man's ability to predict the future and see over the horizon.

I'm beginning to realize I need to start discounting the opinions of all writers of bestsellers sight unseen. These men (and women) are out to promote themselves and make a buck, not to bring light to the darkness.

I was unable to glean anything of use in the first quarter of the book. Based on Amazon reviews, it's unlikely I'll be able to benefit from reading the remainder. I agree that Taleb should sell abridged versions of his book, but his narcissism will prevent him from doing so. Reading through the negative Amazon reviews, it appears that none of his ideas are new and that quants and PhDs are well aware of the existence of "black swans" and attempt to account for them in their models. Bad models do not mean that modeling is bad. Good models are robust enough to survive the shock of "black swans."
http://scottlocklin....tative-finance/

I'd give Taleb more credibility if he wasn't such a pompous self-promoter. I am angry with myself that I gave him royalties on the $10 I paid for the kindle edition of his book.

[PLEASUREMAN]

He does not say, "don't use models", he says understand the limits of models and protect yourself from conditions (however unlikely) that will cause them to blow up. He also doesn't claim that his ideas are new, and it is a very strange criticism to claim that ideas that are not new somehow lack merit or should not be written about as if they are relevant.

You don't understand a fundamental point that he makes--you cannot build the unexpected into a model. It wouldn't be unexpected if you could. You can only protect yourself from the unexpected by making sure you don't manage an economy that is overleveraged and consequently fragile to the unexpected--it will be less efficient but it will allow you to weather the unforeseen instead of blowing up.

The guy you linked to really doesn't understand this either, a failure that seems to enrage him. "It seems to me, sticking some well motivated error bars on economic models is going to get you farther than the chicken entrails approach." That is a foolish and self-discrediting statement, and typical of the hyperbolic tone of the whole piece.

"Sure, his strat looks like genius during the occasional downturn, but the rest of the time (which is most of the time!) he looks like a plain old bear in a bull market." That is in fact Taleb's investment strategy--to lose a little bit on a regular basis, and win big every now and then. He talks about it in both books. He also talks about why it is his investment strategy--most of the bull markets end up killing lots of bulls, and human nature is such that winning a little bit on a regular basis makes us complacent to the risks we are taking.

Scott Locklin saying there are a few long term funds that have been successful, hence this proves their strategy was a sound one, is also a canard Taleb talks about. Given the number of traders, it is a likelihood that through luck alone a few will survive over a given period of time (just like some gamblers will experience long streaks of good fortune).

Only a fool judges the reliability of a model by its output. This is the true reading of entrails and Scott Locklin seems happy to indulge in it. Who is Scott Locklin? From this one blog post you linked to, he seems like a moron whose statements I would take with a grain of salt.

"I’ve honed my writing for years, making fun of idjits on the interbutts," he says. I can tell.

Edit: he doesn't understand Taleb's proposed equity scheme either, and ridicules it like a jackass would, even after a commenter explains to him what its purpose is. This is not a smart guy.

[PRCalDude]

Fine, PMAN, I'LL READ THE REST OF IT.

I'm so skeptical of everything and everyone nowadays I'm skeptical of skepticism itself.

[PLEASUREMAN]

PRCalDude, 29 April 2010 - 10:34 PM:

Fine, PMAN, I'LL READ THE REST OF IT.

I'm so skeptical of everything and everyone nowadays I'm skeptical of skepticism itself.

I don't mean to go off on you but I don't really see how Taleb's style is narcissistic, and he mentions people like Mandelbrot not to namedrop but because his arguments stand on their work. Maybe it's just a cultural thing. Far from being an egomaniac, Taleb is one of the few people I've seen in interviews answer questions with "I don't know" instead of trying to bluff his way with a consensus-speak answer that really means nothing (or has a low likelihood of being accurate). Anyway I have gotten a lot out of reading him, I guess not everyone will find him that insightful, perhaps they feel most of his points are obvious, although Locklin makes some nonsensical criticisms and then defends them with lots of ad hominem.

[PRCalDude]

PLEASUREMAN, 29 April 2010 - 07:55 PM:

PRCalDude, 29 April 2010 - 10:34 PM:

Fine, PMAN, I'LL READ THE REST OF IT.

I'm so skeptical of everything and everyone nowadays I'm skeptical of skepticism itself.

I don't mean to go off on you but I don't really see how Taleb's style is narcissistic, and he mentions people like Mandelbrot not to namedrop but because his arguments stand on their work. Maybe it's just a cultural thing. Far from being an egomaniac, Taleb is one of the few people I've seen in interviews answer questions with "I don't know" instead of trying to bluff his way with a consensus-speak answer that really means nothing (or has a low likelihood of being accurate). Anyway I have gotten a lot out of reading him, I guess not everyone will find him that insightful, perhaps they feel most of his points are obvious, although Locklin makes some nonsensical criticisms and then defends them with lots of ad hominem.

Like I said, my skepticism is feeding on itself. It comes from having read too many gladwells and :flathead:s, accepting their ideas a bit too uncritically, and then reading Sailer's or Pinker's takes on them later and feeling like a fool.