Nassim Nicholas Taleb

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While in theory randomness is an intrinsic property, in practice, randomness is incomplete information.

Nassim Nicholas Taleb (born 1960) is a essayist, epistemologist, researcher, and former practitioner of mathematical finance.

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  • My major hobby is teasing people who take themselves and the quality of their knowledge too seriously and those who don’t have the guts to sometimes say: I don’t know....
  • You may not be able to change the world but can at least get some entertainment & make a living out of the epistemic arrogance of the human race.
    • Nassim Nicholas Taleb's Home Page
  • It is now the scientific consensus that our risk-avoidance mechanism is not mediated by the cognitive modules of our brain, but rather by the emotional ones. This may have made us fit for the Pleistocene era. Our risk machinery is designed to run away from tigers; it is not designed for the information-laden modern world.
    • Quoted in the introduction to "A Talk with Nassim Nicholas Taleb," Edge (April 2004) [1]
  • Much of the research into humans' risk-avoidance machinery shows that it is antiquated and unfit for the modern world; it is made to counter repeatable attacks and learn from specifics. If someone narrowly escapes being eaten by a tiger in a certain cave, then he learns to avoid that cave.
  • We should reward people, not ridicule them, for thinking the impossible.
    • "Learning to Expect the Unexpected," The New York Times (2004-04-08}

[edit] Fooled by Randomness (2001)

  • It does not matter how frequently something succeeds if failure is too costly to bear.
  • Unlike a well-defined, precise game like Russian roulette, where the risks are visible to anyone capable of multiplying and dividing by six, one does not observe the barrel of reality.
  • A mistake is not something to be determined after the fact, but in the light of the information until that point.
  • I always remind myself that what one observes is at best a combination of variance and returns, not just returns.
  • I try to make money infrequently, as infrequently as possible simply because I believe that rare events are not fairly valued, and that the rarer the event, the more undervalued it will be in price.
  • The more data we have, the more likely we are to drown in it.
  • At no point during his ordeal did Nero think of himself as 72% alive and 28% dead.
  • Science evolves from funeral to funeral.
  • Probability is not about the odds, but about the belief in the existence of an alternative outcome, cause, or motive.
  • We favor the visible, the embedded, the personal, the narrated, and the tangible; we scorn the abstract.

[edit] The Black Swan: The Impact of the Highly Improbable (2007)

Random House, 2008, ISBN 0-81297-918-4

  • I disagree with the followers of Marx and those of Adam Smith: the reason free markets work is because they allow people to be lucky, thanks to aggressive trial and error, not by giving rewards or "incentives" for skill.
    • p. xxi
  • History is opaque. You see what comes out, not the script that produces events, [...] The generator of historical events is different from the events themselves, much as the minds of the gods cannot be read just by witnessing their deeds.
    • p. 8
  • Consider that the turkey's experience may have, rather than no value, a negative value. It learned from observation, as we are all advised to do (hey, after all, this is what is believed to be the scientific method). Its confidence increased as the number of friendly feedings grew, and it felt increasingly safe even though the slaughter was more and more imminent. Consider that the feeling of safety reached its maximum when the risk was at the highest!
    • pp. 40–41 (Taleb attributes the parable of the turkey to Bertrand Russell, who originally wrote of a chicken.)
  • The casino is the only human venture I know where the probabilities are known, Gaussian (i.e., bell-curve), and almost computable.
    • p. 127
  • Probability is a liberal art; it is a child of skepticism, not a tool for people with calculators on their belts to satisfy their desire to produce fancy calculations and certainties.
    • p. 128
  • Cumulative errors depend largely on the big surprises, the big opportunities. Not only do economic, financial, and political predictors miss them, but they are quite ashamed to say anything outlandish to their clients — and yet events, it turns out, are almost always outlandish.
    • p. 149
  • Don't cross a river if it is four feet deep on average.
    • p. 161
  • Forecasting by bureaucrats tends to be used for anxiety relief rather than for adequate policy making.
    • p. 162
  • The same past data can confirm a theory and its exact opposite! If you survive until tomorrow, it could mean that either a) you are more likely to be immortal or b) that you are closer to death.
    • p. 185
  • While in theory randomness is an intrinsic property, in practice, randomness is incomplete information.
    • p. 198
  • Rank beliefs not according to their plausibility but by the harm they may cause.
    • p. 203
  • This makes living in big cities invaluable because you increase the odds of serendipitous encounters — you gain exposure to the envelope of serendipity.
    • p. 209
  • Globalization creates interlocking fragility, while reducing volatility and giving the appearance of stability. In other words it creates devastating Black Swans. We have never lived before under the threat of a global collapse. Financial Institutions have been merging into a smaller number of very large banks. Almost all banks are interrelated. So the financial ecology is swelling into gigantic, incestuous, bureaucratic banks — when one fails, they all fall. The increased concentration among banks seems to have the effect of making financial crisis less likely, but when they happen they are more global in scale and hit us very hard. We have moved from a diversified ecology of small banks, with varied lending policies, to a more homogeneous framework of firms that all resemble one another. True, we now have fewer failures, but when they occur... I shiver at the thought.
    • pp. 225-226

[edit] Ten principles for a Black Swan-proof world (2009)

Article published in Financial Times (2009-04-07). Article here.

  • The economics establishment (universities, regulators, central bankers, government officials, various organisations staffed with economists) lost its legitimacy with the failure of the system. It is irresponsible and foolish to put our trust in the ability of such experts to get us out of this mess. Instead, find the smart people whose hands are clean.
  • 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.
  • 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.
  • 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.
  • 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).

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