Monthly Archives: December 2013

The 12 Meanest Things Nassim Taleb Has Said About Economists – Business Insider

  • An economist is a mixture of 1 a businessman without common sense, 2 a physicist without brain, and 3 a speculator without balls.
  • A prostitute who sells her body temporarily is vastly more honorable than someone who sells his opinion for promotion or job tenure.
  • The artificial gives us hangovers, the natural inverse-hangovers. The joys of post-exercise, breaking a fast, meeting a friend, helping someone in trouble, or humiliating an economist are examples of inverse hangovers. Antifragility = series of earned inverse hangovers. They don’t come for free.

via Nassim Taleb On Economists – Business Insider.

The Artangel Longplayer Letters: Stewart Brand writes to Esther Dyson – Blog of the Long Now

Continuing the Artangel Longplayer Letters series. See lower link for Stuart’s full response (addressed to Esther Dyson) to NNT’s letter.

Nassim vaunts “mother nature” as the wise source of safe small-scale tinkering. There are indeed Black Swans—civilization-scale systemic threats—that have come from genetic tinkering. Every one of them was concocted by mother nature—bubonic plague, the 1918 flu, AIDS, malaria, smallpox, and dozens more. No new diseases whatever have come from human laboratories. Cures have, however. Smallpox is gone now, thanks to top-down efforts by science and government. Guinea worm is about to be eradicated permanently. Hopes are high to do the same with polio and even malaria. In the domain of disease, science is antifragile.

The same is true in agriculture. The science of genetic engineering is far more precise than blind selective breeding, and for that reason it is even safer.

I think that the ghost in the GMO ghost story is a misplaced idea of contagion. Any transferred gene, people imagine, might be like a loose plague virus. It might infect everything, or it might hide for years and then emerge catastrophically. But genes don’t work like that. They are nothing but extremely specific tools, operative in extremely specific organisms. A gene is not a germ and cannot act like a germ.

Nassim evokes what he calls a “non-naive Precautionary Principle” to warn about all manner of human innovation. Daniel Kahneman takes an opposing view:

As the jurist Cass Sunstein points out, the precautionary principle is costly, and when interpreted strictly it can be paralyzing. He mentions an impressive list of innovations that would not have passed the test, including “airplanes, air conditioning, antibiotics, automobiles, chlorine, the measles vaccine, open-heart surgery, radio, refrigeration, smallpox vaccine, and X-rays.” The strong version of the precautionary principle is obviously untenable. (Thinking, p. 351)

To achieve Nassim’s goal of an antifragile society, I think we can build on his core idea, which is that, over time, whatever is fragile inevitably breaks, while systems that are antifragile use time to grow stronger. The question is, how do we mix innovative boldness with caution in a way that gradually reduces fragile ideas and systems while promoting antifragile ideas and systems? How do we think ahead without paralyzing ourselves with ghost stories, or indeed with any simplistic narrative?

via » The Artangel Longplayer Letters: Stewart Brand writes to Esther Dyson – Blog of the Long Now.
HatTip to Dave Lull

On the Difference between Binary Prediction and True Exposure With Implications For Forecasting Tournaments and Decision Making Research

On the Difference between Binary Prediction and True Exposure With Implications For Forecasting Tournaments and Decision Making Research

Nassim N. Taleb, Philip E. Tetlock

Abstract
There are serious statistical differences between predictions, bets, and exposures that have a yes/no type of payoff, the “binaries”, and those that have varying payoffs, which we call the “variable”. Real world exposures tend to belong to the variable category, and are poorly captured by binaries. Yet much of the economics and decision making literature confuses the two. variable exposures are sensitive to Black Swan effects, model errors, and prediction problems, while the binaries are largely immune to them. The binaries are mathematically tractable, while the variable are much less so. Hedging variable exposures with binary bets can be disastrous–and because of the human tendency to engage in attribute substitution when confronted by difficult questions,decision-makers and researchers often confuse the variable for the binary.

https://docs.google.com/file/d/0B_31K_MP92hUZFRrQk1VOExqMUE/edit?pli=1

A BS detection Heuristic. You can tell if a discipline is BS…

A BS detection Heuristic.

You can tell if a discipline is BS if the degree depends severely on the prestige of the school granting it. I remember when I applied to MBA programs being told that anything outside the top 10 or 20 would be a waste of time. On the other hand a degree in mathematics is much less dependent on the shool (conditional on being above a certain level, so the heuristic would apply to the differene betwewn top 10 and top 2000 schools).

The same applies to research papers. In math and physics, a result posted on arXiv (with a minimum hurdle) is fine. In low quality fields like academic finance (where almost all academics are charlatans and all papers some form of complicated storytelling), the “prestige” of the journal is the sole criterion.

I don’t know about literature, sociology, political science, etc. Does the heuristic work there?

via A BS detection Heuristic. You can tell if a… – Nassim Nicholas Taleb.

Friends, I have a question on ethics. Nineteen years ago…

Friends, I have a question on ethics. Nineteen years ago, when I submitted Dynamic Hedging, the publisher sent the manuscript to a bunch of academics interested in the subject. The referee reports came very negative, as academics think they have the monopoly of knowledge and everything they don’t do is crap. Not one at the time considered that quants had sophistication they didn’t have: it had to be inferior. Luckily I convinced the publisher to send the book to quants (who had PhDs and Dr in front of their name) and it was all OK.

As nothing ever remains secret (there is no anonymity) I managed to get hold of the list of academics who reviewed the book. Two were excusable (ignorance); one of them was mean, extremely nasty, totally in bad faith, thinking he was protected by the anonymity of the process. His point was people had nothing to learn from traders about the risk of options.

Now the question: Given that I know his name and that he can harm others, should I bust him for the sake of exposing fraud ? It is a moral obligation?

Or should the anonymity of the peer-review mechanism (with all the inequities it causes) be preserved in the name of a higher benefit? Which route is more ethical: exposing him or NOT exposing him?

Thank you in advance.

http://www.amazon.com/Dynamic-Hedging-Managing-Vanilla-Options/dp/0471152803/ref=pd_sim_b_7

via Friends, I have a question on ethics. Nineteen… – Nassim Nicholas Taleb.