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jerryking : nassim_taleb   24

How to Prepare for the Next Recession: Automate the Rescue Plan
San Diego 4h ago
As someone with an engineering background (both education and mindset) this kind of simplistic design of complex systems is very concerning.

If anyone remembers Nassim Tal...
complexity  economic_downturn  ecosystems  financial_crises  howto  letters_to_the_editor  modelling  models  Nassim_Taleb  oversimplification  preparation  recessions 
may 2019 by jerryking
How to avert catastrophe
January 21, 2017 | FT | Simon Kuper.

an argument: people make bad judgments and terrible predictions. It’s a timely point. The risk of some kind of catastrophe — armed conflict, natural disaster, and/or democratic collapse — appears to have risen. The incoming US president has talked about first use of nuclear weapons, and seems happy to let Russia invade nearby countries. Most other big states are led by militant nationalists. Meanwhile, the polar ice caps are melting fast. How can we fallible humans avert catastrophe?

• You can’t know which catastrophe will happen, but expect that any day some catastrophe could. In Tversky’s words: “Surprises are expected.” Better to worry than die blasé. Mobilise politically to forestall catastrophe.
• Don’t presume that future catastrophes will repeat the forms of past catastrophes. However, we need to expand our imaginations. The next catastrophe may take an unprecedented form.
• Don’t follow the noise. Some catastrophes unfold silently: climate change, or people dying after they lose their jobs or their health insurance. (The financial crisis was associated with about 260,000 extra deaths from cancer in developed countries alone, estimated a study in The Lancet.)
• Ignore banalities. We now need to stretch and bore ourselves with important stuff.
• Strengthen democratic institutions.
• Strengthen the boring, neglected bits of the state that can either prevent or cause catastrophe. [See Why boring government matters November 1, 2018 | | Financial Times | Brooke Masters.
The Fifth Risk: Undoing Democracy, by Michael Lewis, Allen Lane, RRP£20, 219 pages. pinboard tag " sovereign-risk" ]
• Listen to older people who have experienced catastrophes. [jk....wisdom]
• Be conservative. [ conservative, be discerning, be picky, be selective, say "no"]
Amos_Tversky  apocalypses  black_swan  boring  catastrophes  conservatism  democratic_institutions  disasters  disaster_preparedness  disaster_myopia  elder_wisdom  emergencies  financial_crises  imagination  imperceptible_threats  Nassim_Taleb  natural_calamities  noise  silence  Simon_Kuper  slowly_moving  surprises  tips  threats  unglamorous 
january 2017 by jerryking
Speaking the Language of Risk -

humans outside the financial world define risk differently. In everyday life, we tend to think of risk as uncertainty, or what is left over after we have thought of everything else.

With uncertainty comes variability within a set of unknown limits. It’s the stuff that comes out of left field, like Nassim Nicholas Taleb’s black swan events. Because we can’t measure uncertainty with any sort of accuracy, we think of risk as something outside our control. We often connect it to things like running out of money in retirement or ending up in a car crash.

But how did we end up with two such completely different definitions of the same thing? My research points to an economist named Frank Knight and his book “Risk, Uncertainty and Profit.” (Toronto Reference Library, Stack Request, 330.1 K54.11)

In 1921, Mr. Knight wrote: “There is a fundamental distinction between the reward for taking a known risk and that for assuming a risk whose value itself is not known.” When a risk is known, it is “easily converted into an effective certainty,” while “true uncertainty,” as Knight called it, is “not susceptible to measurement.”...I’m also betting that if you heard a term like “risk management model,” you really thought, “uncertainty management model.” Unfortunately, no financial firm offers uncertainty management.

Solving this problem doesn’t require a new definition. We just need to shift our thinking when we hear someone in finance mention risk. We need to remember, that person isn’t talking about the odds we’ll lose everything, but about something that fits in a box.

I suspect that is why financial professionals sound so confident when they talk about managing our risk. In their minds, managing risk comes down to a formula they can fine-tune on their Dial-A-Risk meter. In our minds, we have to learn to separate the formula from the unknown unknowns that cannot be accounted for in any model or equation.

Once we learn to recognize that we are not talking about the same thing, we can avoid terrible disappointment and bad behavior when financial risk shows up again. And it will.
risks  uncertainty  unknowns  books  interpretation  financial_risk  beyond_one's_control  Nassim_Taleb  black_swan  misinterpretations  miscommunications  disappointment  languages 
may 2015 by jerryking
You can’t predict a black swan - The Globe and Mail
The Globe and Mail
Published Thursday, Jan. 29 2015

The New York snowstorm that wasn’t, like the Swiss currency storm that was, are reminders that sophisticated computer models used to predict the future are useless in the face of the unpredictable. Instead of seeking a false assurance in the models, it’s better to prepare, to the extent possible, to weather any storm Mother Nature or man dishes up.

Black swans are “large-scale, unpredictable and irregular events of massive consequence,” as defined by the author who popularized the term in a 2007 book. Given their unpredictability, says Nassim Nicholas Taleb, the solution cannot lie in developing better predictive methods....Robust policy – such as sustainable public finances or effective bank regulations – must be designed to withstand black swans.
Konrad_Yakabuski  forecasting  weather  public_policy  reminders  modelling  unpredictability  assumptions  antifragility  Nassim_Taleb  black_swan  resilience  risk-management  policymaking 
january 2015 by jerryking
What Data Can’t Do -
Published: February 18, 2013

there are many things big data does poorly. Let’s note a few in rapid-fire fashion:

* Data struggles with the social. Your brain is pretty bad at math (quick, what’s the square root of 437), but it’s excellent at social cognition. People are really good at mirroring each other’s emotional states, at detecting uncooperative behavior and at assigning value to things through emotion.
* Data struggles with context. Human decisions are embedded in contexts. The human brain has evolved to account for this reality...Data analysis is pretty bad at narrative and emergent thinking.
* Data creates bigger haystacks. This is a point Nassim Taleb, the author of “Antifragile,” has made. As we acquire more data, we have the ability to find many, many more statistically significant correlations. Most of these correlations are spurious and deceive us when we’re trying to understand a situation.
* Big data has trouble with big (e.g. societal) problems.
* Data favors memes over masterpieces. Data analysis can detect when large numbers of people take an instant liking to some cultural product. But many important (and profitable) products are hated initially because they are unfamiliar. [The unfamiliar has to accomplish behavioural change / bridge cultural divides]
* Data obscures hidden/implicit value judgements. I recently saw an academic book with the excellent title, “ ‘Raw Data’ Is an Oxymoron.” One of the points was that data is never raw; it’s always structured according to somebody’s predispositions and values. The end result looks disinterested, but, in reality, there are value choices all the way through, from construction to interpretation.

This is not to argue that big data isn’t a great tool. It’s just that, like any tool, it’s good at some things and not at others. As the Yale professor Edward Tufte has said, “The world is much more interesting than any one discipline.”
massive_data_sets  David_Brooks  data_driven  decision_making  data  Nassim_Taleb  contrarians  skepticism  new_graduates  contextual  risks  social_cognition  self-deception  correlations  value_judgements  haystacks  narratives  memes  unfamiliarity  naivete  hidden  Edward_Tufte  emotions  antifragility  behavioral_change  new_products  cultural_products  masterpieces  EQ  emotional_intelligence 
february 2013 by jerryking
Why trauma may be just what you need - The Globe and Mail
Nassim Nicholas Taleb

Special to The Globe and Mail

Last updated Saturday, Dec. 01 2012

with Antifragile: Things That Gain from Disorder, an expansion of his thinking on risk beyond business and the markets to all sides of life. He begins from the standpoint that the opposite of being vulnerable to random events is not simply to be sturdy or adaptable, but actually to thrive on some degree of calamity and improve by it – “antifragility.” He rails against the “fragilistas” who make things more dangerous by seeking an unrealizable stability, and advocates for a “hormetic” approach (strengthening the system with small doses of toxins) in education, health, politics, careers, finance and many other areas.

In this passage, Mr. Taleb considers the “antifragile” benefits of trauma, redundancy and overcompensation
Nassim_Taleb  books  disorder  antifragility  randomness  toxins  trauma  redundancies  overcompensation 
december 2012 by jerryking
Stocking stuffers
In Antifragility: Things That Gain from Disorder ($33, Random House). Nassim Nicholas Taleb examines catastrophe resistant structures with his characteristic Chutzpah. rolling his eyes at academics and risk managers alike. He can; pest-Black Swan, his career isn't fragile.

Edward N. Luttwak is both a military historian and a field operative who's worked for the US. government. so it's no surprise that The Rise of China vs. the Logic of Strategy ($26, Belknap) is both / thorough and concise. Any serious Study of foreign policy issues in Asia should start here.

Paper Promises: Money, Debt, and the New World Order ($18, Penguin) didn't get the coverage that other financial crisis tomes did. so the
paperback release of imbalances that could this masterful survey ‘5* by The Economist's E Buttonwood columnist.
Nassim_Taleb  book_reviews  booklists  books  antifragility  catastrophes  imbalances 
december 2012 by jerryking
Whatever the weather
Nov. 24, 2012 | The Financial Times News: p10.|Gillian Tett who interviews Nassim Nicholas Taleb

Until now, Taleb says, modern society has generally assumed that people, systems or institutions fell into two camps: either they were fragile (and likely to break when shocks occur) or robust (and thus able to resist shocks without being impacted at all). Taleb insists there is a third category of people, institutions and systems that are resilient in a way we have been unable to articulate: they survive shocks not because they are immovable but precisely because they do change, bending in the face of stress; adapting and learning. This is the quality that he describes as "antifragile". (In the US the book is being published with the rather more explicit subtitle "Things that Gain from Disorder".)

Taleb goes on to explain how this works: while nation-states tend to be fragile (because they are highly dependent on one vision of the nation), city-states tend to be antifragile (because they can adapt and learn from history). Careers that are based on one large employer can be fragile but careers that are flexible and entrepreneurial are antifragile, because they can move with changing times. Similarly, the banking system is fragile, while Silicon Valley is antifragile; governments that are highly indebted are fragile, while those (such as Sweden) which have learnt from past mistakes and refuse to assume too much debt are antifragile. And Switzerland is presented as one of the most antifragile places of all, partly because its decentralised structure allows for plenty of experimentation...Taleb has plenty of advice to offer us on how to become more antifragile. We should embrace unpredictable change, rather than chase after an illusion of stability; refuse to believe anyone who offers advice without taking personal risk; keep institutions and systems small and self-contained to ensure that they can fail without bringing the entire system down; build slack into our lives and systems to accommodate surprises; and, above all, recognise the impossibility of predicting anything with too much precision. Instead of building systems that are excessively "safe", Taleb argues, we should roll with the punches, learn to love the random chances of life and, above all, embrace small pieces of adversity as opportunities for improvement. "Wind extinguishes a candle and energises a fire," he writes. "Likewise with randomness, uncertainty, chaos, you want to use them, not hide from them."
adaptability  adversity  antifragility  books  chaos  city-states  Gillian_Tett  illusions  Nassim_Taleb  overcompensation  personal_risk  randomness  resilience  scheduling  self-contained  skin_in_the_game  slack_time  surprises  trauma  uncertainty  unpredictability 
november 2012 by jerryking
by Taleb, Nassim Nicholas.
Year/Format: 2012

Just as human bones get stronger when subjected to stress and tension, and rumors or riots intensify when someone tries to repress them, many things in life benefit from stress, disorder, volatility, and turmoil. What Taleb has identified and calls “antifragile” is that category of things that not only gain from chaos but need it in order to survive and flourish.

In The Black Swan,Taleb showed us that highly improbable and unpredictable events underlie almost everything about our world. In Antifragile, Taleb stands uncertainty on its head, making it desirable, even necessary, and proposes that things be built in an antifragile manner. The antifragile is beyond the resilient or robust. The resilient resists shocks and stays the same; the antifragile gets better and better.

Furthermore, the antifragile is immune to prediction errors and protected from adverse events. Why is the city-state better than the nation-state, why is debt bad for you, and why is what we call “efficient” not efficient at all? Why do government responses and social policies protect the strong and hurt the weak? Why should you write your resignation letter before even starting on the job? How did the sinking of theTitanicsave lives? The book spans innovation by trial and error, life decisions, politics, urban planning, war, personal finance, economic systems, and medicine. And throughout, in addition to the street wisdom of Fat Tony of Brooklyn, the voices and recipes of ancient wisdom, from Roman, Greek, Semitic, and medieval sources, are loud and clear.

Antifragile is a blueprint for living in a Black Swan world.
antifragility  Black_Swan  blueprints  bones  bone_density  books  brittle  city-states  disorder  improbables  libraries  Nassim_Taleb  revenge_effects  stressful  tension  turmoil  unpredictability  volatility 
november 2012 by jerryking
Learning to Love Volatility: Nassim Nicholas Taleb on the Antifragile
November 16, 2012 | WSJ | Nassim Nicholas Taleb

In a world that constantly throws big, unexpected events our way, we must learn to benefit from disorder, writes Nassim Nicholas Taleb.

Some made the mistake of thinking that I hoped to see us develop better methods for predicting black swans. Others asked if we should just give up and throw our hands in the air: If we could not measure the risks of potential blowups, what were we to do? The answer is simple: We should try to create institutions that won't fall apart when we encounter black swans—or that might even gain from these unexpected events....To deal with black swans, we instead need things that gain from volatility, variability, stress and disorder. My (admittedly inelegant) term for this crucial quality is "antifragile." The only existing expression remotely close to the concept of antifragility is what we derivatives traders call "long gamma," to describe financial packages that benefit from market volatility. Crucially, both fragility and antifragility are measurable.

As a practical matter, emphasizing antifragility means that our private and public sectors should be able to thrive and improve in the face of disorder. By grasping the mechanisms of antifragility, we can make better decisions without the illusion of being able to predict the next big thing. We can navigate situations in which the unknown predominates and our understanding is limited.

Herewith are five policy rules that can help us to establish antifragility as a principle of our socioeconomic life.

Rule 1:Think of the economy as being more like a cat than a washing machine.

We are victims of the post-Enlightenment view that the world functions like a sophisticated machine, to be understood like a textbook engineering problem and run by wonks. In other words, like a home appliance, not like the human body. If this were so, our institutions would have no self-healing properties and would need someone to run and micromanage them, to protect their safety, because they cannot survive on their own.

By contrast, natural or organic systems are antifragile: They need some dose of disorder in order to develop. Deprive your bones of stress and they become brittle. This denial of the antifragility of living or complex systems is the costliest mistake that we have made in modern times.

Rule 2:Favor businesses that benefit from their own mistakes,not those whose mistakes percolate into the system.

Some businesses and political systems respond to stress better than others. The airline industry is set up in such a way as to make travel safer after every plane crash.

Rule 3:Small is beautiful, but it is also efficient.

Experts in business and government are always talking about economies of scale. They say that increasing the size of projects and institutions brings costs savings. But the "efficient," when too large, isn't so efficient. Size produces visible benefits but also hidden risks; it increases exposure to the probability of large losses.
Rule 4:Trial and error beats academic knowledge.
Rule 5:Decision makers must have skin in the game.

In the business world, the solution is simple: Bonuses that go to managers whose firms subsequently fail should be clawed back, and there should be additional financial penalties for those who hide risks under the rug. This has an excellent precedent in the practices of the ancients. The Romans forced engineers to sleep under a bridge once it was completed (jk: personal risk and skin in the game).
Nassim_Taleb  resilience  black_swan  volatility  turmoil  brittle  antifragility  personal_risk  trial_&_error  unknowns  size  unexpected  economies_of_scale  risks  hidden  compounded  disorder  latent  financial_penalties  Romans  skin_in_the_game  deprivations  penalties  stressful  variability 
november 2012 by jerryking
What's The Big Idea?
Mar 12, 2011 | Financial Times. pg. 28 | by James Crabtree. Forward to R. Mayot re. IdeaCity

From Davos, to Long Beach, to north Wales, 'ideas conferences' are burgeoning. But, asks James Crabtree, are they really the new crucibles for creative thinking - or just exclusive talking shops?

Aficionados of cult television know Portmeirion simply as "the village". Here, in the 1960s show The Prisoner, Patrick McGoohan insists "I am not a number, I am a free man," and plots his escape from a mysterious captive community. But, last weekend, the town hosted a different sort of exclusive gathering - and one perhaps better known for those trying to get in, not out.

Against a backdrop of pastel-painted Italianate cliff-top villas, around 120 specially invited guests descended on the Welsh coastal village for what its organisers describe as a global "thought leadership symposium". Such self-selected elite groupings seem, at first glance, to be little more than a weekend break for an already-fortunate section of the chattering classes; what one Portmeirion participant dryly described as "a socially concerned Saga mini-break, dressed up as something more serious".

But such events are also part of a wider trend in the burgeoning market for "ideas conferences" - exclusive conflabs that bring together groups of leaders with the aim of sparking creative ideas, untethered from the niche subjects, academic specialisms or industry segments that have long dominated professional events.

Examples are not hard to find. The business summit in the secluded Swiss mountain resort of Davos is the most famous. But the first week of March also saw the latest TED conference, an exclusive annual USD7,500-a-ticket gathering in Long Beach, California, dedicated to "ideas worth spreading". Elsewhere Google runs an annual invite-only conference, known as Zeitgeist, while American internet evangelist Tim O'Reilly hosts excitable technology entrepreneurs at Foo Camp, which modestly stands for "Friends of O'Reilly".

Dozens of smaller meetings are popping up too, such as Portmeirion, now in its third year and with the FT as one of its sponsors. They represent a shift in the market for conferences, now forced to be more eye-catching to attract the attention of more demanding and distracted audiences. But their blossoming also illuminates a wider trend: the growing importance of unusual ideas and rich social networks, in an economy in which information is both increasingly valuable and confusingly abundant.

Those gathered at Portmeirion this year formed an eclectic group, ranging from polymathic finance expert Nassim Nicholas Taleb to actress Miriam Margolyes and rock concert promoter Harvey Goldsmith. Elsewhere the resort's narrow streets were thronged with a mixture of senior bankers, newspaper columnists, politicians, entrepreneurs, authors and think-tank boffins.

Portmeirion itself used to be something of a salon for London's recuperating elite, hosting guests such as Noel Coward and Bertrand Russell. The idea of hosting a contemporary event there stems from this: it is the brainchild of British public relations guru Julia Hobsbawm, whose father (the Marxist historian Eric Hobsbawm) brought their family to the town for summer holidays.

Top-level gatherings have long been a feature of politics and international affairs. Historian Simon Schama points to The Poker Club, a distinguished salon at the heart of the Scottish Enlightenment of the late 1700s, which counted David Hume and Adam Smith among its members.

Today's ideas conferences are less serious affairs than their antecedents, with agendas that go well beyond the straitjacketed worlds of politics, foreign affairs and business. Videos, jazzy graphics and blaring music between sessions all help keep participants engaged. Informal, unscripted agenda-less "unconferences", are also popular.

A defiantly cross-disciplinary ethic marks out this new class of events, whose programmes are seemingly incomplete without sculptors, comedians and bioethicists to balance out the economists and business gurus. Portmeirion's two most memorable sessions were its most eclectic: a plea to save the seas from oceanographer Sylvia Earle, and a moving film about Indian prostitution from filmmaker Beeban Kidron.

The flipside of this variety is a certain intellectual vagueness, as organisers try to hold together a programme full of clashing insights. The gnomic theme of the most recent TED, for instance, was "the rediscovery of wonder" - featuring a live talk from an astronaut in an orbiting space station, and a demonstration of a machine that "printed" human body parts. The theme of Portmeirion, meanwhile, was simply "community and values", into which one could read just about anything.

Certainly, it isn't always clear what these conferences are meant to be about. The ideal speaker, therefore, is someone able to cross many intellectual boundaries at once [jk: does this meet the definition of "transgressive"??] - as with Nassim Nicholas Taleb, author of The Black Swan, who kicked off the Portmeirion gathering with a magisterial address on the topic of "anti-fragility" in complex social and economic systems. His remarks ranged from mathematics and economics to political theory and Greek history, leaving attendees at once stimulated and more than a little perplexed.

There is an underlying economic rationale too. Delegates often work in professions that place a premium on finding and exploiting the ideas central to processes of innovation in modern businesses. This makes the events business-friendly too - a fact compounded by their need to win extensive corporate sponsorship, which in turn pays for the meals and accommodation that non-paying guests and speakers enjoy.

Yet if the ideas are a little fuzzy, and the business jargon a little too prevalent, this is because, more than anything, these conferences are meant as a celebration, and a test, of the individuals picked to attend - those high-powered, busy, professionally successful types who make a living telling others what they should watch, read or buy.

RSA chief executive Matthew Taylor notes the importance of intellectual cross-dressing at such events: "They allow people to throw off their professional persona for 48 hours: journalists become social theorists, businesspeople become green warriors, and academics become showmen. But on Monday morning - perhaps to everyone's secret relief - it's back to work."

Although their easygoing participants would tend to deny this, these events are a new form of elitism: a novel way of marking out a social and professional hierarchy, in which sensibility and interestingness replaces class or creed. What follows is stimulating, but also reflects the similar outlooks of the media and intellectual elite in a post-ideological world: an ersatz form of intellectualism, which might have raised an eyebrow in Eric Hobsbawm's day.

Even so, such ideas events prosper because they solve a problem faced by many at the top of their professions. The much-discussed "death of distance" never happened; globalisation and the profusion of technology makes place more important. Similarly, a world of abundant, instantly accessible information seems to make personal connection more vital. This puts a premium on private events, which force their participants to spend time developing ideas without distraction. The ideas conference is here to stay.

The Polymath

Nassim Nicholas Taleb

As the guru credited with spotting the unexpected "black swan" events behind the global financial meltdown, Nassim Nicholas Taleb (illustration above) has a track record for spotting unusual ideas. He worries that we have still not learnt the lessons of the crisis, identifying ongoing major threats arising from "expert problems". The risk, he notes, is that "a pseudo-expert astrologist doesn't have many damaging side- effects, but a pseudo-expert economist certainly does".

Taleb is sceptical of some ideas gatherings. Davos is a particular bugbear; he turns down the annual invitation on the grounds that it is "too big, on the wrong topics, and with the wrong people". Other events have their problems too - in particular their tendency to turn "scientists into entertainers and circus performers".

Taleb is currently developing his thinking for a forthcoming book, which he describes as a deeper "volume two" of the themes he explored in The Black Swan. His new big idea is "anti-fragility", or the stability that comes from decentralised, complex systems - such as those found in nature (i.e. biomimicry), or artisan industries - which allow regular small acts of self-destruction, but adapt to keep the system as a whole stable. He contrasts this with fragile, centralised systems - such as the post-crisis banking industry - which prop up their failing parts.

The Agent

Caroline Michel

It is the books with the "big themes" that sell well nowadays, explains Caroline Michel (below), one of London's leading literary agents. Her job, she says, is one in which "amazing people come to me with brilliant ideas, and it is my job to work out what to do with them". In this role she styles herself as part of a new class of "professional mediators", a cadre of ideas professionals whose role it is to weed out "Pot-Noodle knowledge", and give the public new ways to find the valuable information they need.

Consequently, she is a confirmed ideas conference fan, citing book gatherings such as the annual Hay Festival as a source of inspiration. But when facing "an extraordinary spaghetti of knowledge and information", she says, even knowledge professionals find themselves struggling to "to pull through strands" they can understand. A world in which "we have access to this huge mass of information, and in which we are all instant doctors and instant reporters" therefore only increases the importance of those few "people you trust to show you the way through it" - and makes doubly important the chance to listen to them, and to interact with them, in person.

The Entrepreneur

Will … [more]
antifragility  conferences  cross-disciplinary  cross-pollination  David_Hume  Davos  fragility  hierarchies  ideas  ideaCity  invitation-only  Nassim_Taleb  self-destructive  TED  Tim_O'Reilly  thinking_big  trend_spotting  Zeitgeist 
march 2011 by jerryking
Unlearning 101: Study Carneades
July 09, 2008 | unlearning 101 | by Jack Uldrich. " I say that
I’m not entitled to have an opinion on this subject unless I can state
the argument against my position better than the people who support it. I
think only when I’ve reached that state am I qualified to speak.” "
F. Scott Fitzgerald who once said: “The test of a first rate mind is the
ability to hold two diametrically opposed ideas at the same time and
still function.”"
critical_thinking  history  philosophy  skepticism  strategic_thinking  Nassim_Taleb  opposing_actions  books  incompatibilities  Greek  Stoics  dual-consciousness  disagreements  F._Scott_Fitzgerald 
february 2010 by jerryking
Ten principles for a Black Swan-proof world
April 7 2009 | Financial Times | By Nassim Nicholas Taleb. 1.
What is fragile should break early while it is still small. 2. No
socialisation of losses and privatisation of gains. 3.People who were
driving a school bus blindfolded (and crashed it) should never be given a
new bus. 4. Do not let someone making an “incentive” bonus manage a nuclear plant – or your financial
risks. Odds are he would cut every corner on safety to show “profits” while claiming to be
“conservative”. Bonuses do not accommodate the hidden risks of blow-ups. It is the asymmetry
of the bonus system that got us here. No incentives without disincentives: capitalism is about
rewards and punishments, not just rewards.
5. Counter-balance complexity with simplicity. Complexity from globalisation and highly
networked economic life needs to be countered by simplicity in financial products. The complex
economy is already a form of leverage: the leverage of efficiency. Such systems survive thanks
to slack and redundancy; adding debt produces wild and dangerous gyrations and leaves no
room for error. Capitalism cannot avoid fads and bubbles: equity bubbles (as in 2000) have
proved to be mild; debt bubbles are vicious.
6. Do not give children sticks of dynamite, even if they come with a warning . Complex
derivatives need to be banned because nobody understands them and few are rational enough
to know it. Citizens must be protected from themselves, from bankers selling them “hedging”
products, and from gullible regulators who listen to economic theorists.
7. Only Ponzi schemes should depend on confidence. Governments should never need to
“restore confidence”. Cascading rumours are a product of complex systems. Governments
cannot stop the rumours. Simply, we need to be in a position to shrug off rumours, be robust
in the face of them.
8. Do not give an addict more drugs if he has withdrawal pains. Using leverage to cure the
problems of too much leverage is not homeopathy, it is denial. The debt crisis is not a
temporary problem, it is a structural one. We need rehab.
9. Citizens should not depend on financial assets or fallible “expert” advice for their retirement.
Economic life should be definancialised. We should learn not to use markets as storehouses of
value: they do not harbour the certainties that normal citizens require. Citizens should
experience anxiety about their own businesses (which they control), not their investments
(which they do not control).
10. Make an omelette with the broken eggs. Finally, this crisis cannot be fixed with makeshift
repairs, no more than a boat with a rotten hull can be fixed with ad-hoc patches. We need to
rebuild the hull with new (stronger) materials; we will have to remake the system before it does
so itself. Let us move voluntarily into Capitalism 2.0 by helping what needs to be broken break
on its own, converting debt into equity, marginalising the economics and business school
establishments, shutting down the “Nobel” in economics, banning leveraged buyouts, putting
bankers where they belong, clawing back the bonuses of those who got us here, and teaching
people to navigate a world with fewer certainties.
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.
In other words, a place more resistant to black swans
black_swan  Nassim_Taleb  lessons_learned  fragility 
july 2009 by jerryking
Paul Wilmott's Financial Magazine -
September 2008 Issue | | by Bryant Urstadt

Financial whiz Paul Wilmott edits the most influential magazine you've
never heard of. He's the author of a three-volume, 1,500-page anchor of a
book called Paul Wilmott on Quantitative Finance. The latest edition
lists for $295. He has written two other books and edited about 10 more,
all of which are attempts to explain the high-level math underlying the
derivatives that have dominated Wall Street in the past decade.
quants  magazines  Nassim_Taleb  finance  corporate_finance 
april 2009 by jerryking
In search of the black swans
Apr 1, 2009 | - | Mark Buchanan
In search of the black swans

The publish-or-perish ethic too often favours a narrow and conservative
approach to scientific innovation. Mark Buchanan asks whether we are
pushing revolutionary ideas to the margins.
black_swan  Nassim_Taleb  human_innovation  discoveries  risk-taking  ideas  moonshots  breakthroughs 
april 2009 by jerryking
Shattering the Bell Curve
Tuesday, April 24, 2007 WSJ book review by DAVID A. SHAYWITZ of Nassim Taleb's The Black Swan.

[how to exploit power laws?]

Life isn't fair. Many of the most coveted spoils -- wealth, fame, links on the Web -- are concentrated among the few. If such a distribution doesn't sound like the familiar bell-shaped curve, you're right......Along the hilly slopes of the bell curve, most values -- the data points that track whatever is being measured -- are clustered around the middle. The average value is also the most common value. The points along the far extremes of the curve contribute very little statistically. If 100 random people gather in a room and the world's tallest man walks in, the average height doesn't change much. But if Bill Gates walks in, the average net worth rises dramatically. Height follows the bell curve in its distribution. Wealth does not: It follows an asymmetric, L-shaped pattern known as a "power law," where most values are below average and a few far above. In the realm of the power law, rare and extreme events dominate the action......In "The Black Swan" -- a kind of cri de coeur -- Mr. Taleb struggles to free us from our misguided allegiance to the bell-curve mindset and awaken us to the dominance of the power law......The attractiveness of the bell curve resides in its democratic distribution and its mathematical accessibility. ......The power-law distribution, by contrast, would seem to have little to recommend it. Not only does it disproportionately reward the few, but it also turns out to be notoriously difficult to derive with precision. The most important events may occur so rarely that existing data points can never truly assure us that the future won't look very different from the present.........The problem, insists Mr. Taleb, is that most of the time we are in the land of the power law [jk: does power law = winner-take-all?] and don't know it. .....Mr. Taleb is fascinated by the rare but pivotal events that characterize life in the power-law world. He calls them Black Swans....Taleb discusses the follies of confirmation bias (our tendency to reaffirm our beliefs rather than contradict them), narrative fallacy (our weakness for compelling stories), silent evidence (our failure to account for what we don't see), ludic fallacy (our willingness to oversimplify and take games or models too seriously), and epistemic arrogance (our habit of overestimating our knowledge and underestimating our ignorance).
biases  book_reviews  black_swan  books  confirmation_bias  fallacies_follies  imprecision  ludic_fallacy  income_distribution  narrative_fallacy  Nassim_Taleb  powerlaw  pretense_of_knowledge  silent_evidence  randomness  unevenly_distributed  winner-take-all 
march 2009 by jerryking Flying in from left field: the Black Swan
July 11, 2007 book review by Harvey Schachter of Nassim Taleb's The Black Swan
book_reviews  Harvey_Schachter  black_swan  Nassim_Taleb 
january 2009 by jerryking

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