Skip to content

Randomness, probability and uncertainty: Stress best | The Economist

Indeed, Mr Taleb thinks the big mistake is trying too hard to avoid shocks. Long periods of stability allow risks to accumulate until there is a major disaster; volatility means that things do not get too far out of kilter. In the economy cutting interest rates at the first sign of weakness stores up more trouble for later. In markets getting rid of speculators means prices are more stable in general but any fluctuations cause greater panic. In political systems the stability brought by regimes such as Hosni Mubarak’s in Egypt was artificial; without any effective way for people to express dissent, change leads to collapse.

The principle applies to career choices too. An apparently secure job within a large company disguises a dependency on a single employer and the risk that unemployment will cause a very sudden and steep loss of income. Professions that have more variable earnings, like taxi-driving or prostitution, are less vulnerable to really big shocks. They also use volatility as information: if a cabbie is in a part of town where there are no fares, he heads to a different area.

via Randomness, probability and uncertainty: Stress best | The Economist.
HatTip to Dave Lull!

Post a Comment

Your email is never published nor shared. Required fields are marked *
*
*