5.0 out of 5 stars Nobody asked them if they would rather get respect and no aid rather than aid and no respect., April 3, 2014

By N N Taleb “Nassim N Taleb”

This review is from: The Tyranny of Experts: Economists, Dictators, and the Forgotten Rights of the Poor (Hardcover)

The point that top-down development methods are great on paper but have not produced benefits (“so far”) is a point Easterly has made before, heavily influencing yours truly in the formation his own argument against naive interventionism and the collection of “humanitarians” fulfilling their personal growth and shielding themselves from their conscience… This is more powerful: the West has been putting development ahead of moral issues, patronizingly setting aside the right of the people to decide their own fate, including whether they want these “improvements”, hence compounding failure and turning much of development into an agenda that benefits the careers (and angst) of “humanitarians”, imperial policies, and, not least, local autocrats *without* any moral contribution. Talking about a sucker problem.

***

To put it in an aphorism, they didn’t ask the people if they would rather get respect and no aid rather than aid and no respect.

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1.0 out of 5 stars
Nonsensical definition of rationality, February 7, 2014
By N N Taleb “Nassim N Taleb”
This review is from: The Rational Animal: How Evolution Made Us Smarter Than We Think Hardcover
I am not used to give 1 start reviews but I truly feel compelled to do so here, not just because this is a very bad book, but also because the authors are clueless about risk and are dangerously so, promoting silly risk bearing. The authors pathologize people for not accepting GMOs although “the World Health Organization has never found evidence of ill effects” a standard confusion of evidence of absence and absence of evidence. This pathologizing is similar to behavioral researchers labeling hyperbolic discounting as “irrational” when in fact it is the researcher who has a very narrow model and richer models make the “irrationality” go away. They fail to understand that humans may have precautionary principles against systemic risks, and can be skeptical of the unnatural for rational reasons.The book is a rehashing of the general ideas about evolution, except falling for a certain brand of “naive rationalism”.

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5.0 out of 5 stars
Indispensable, January 7, 2014
By N N Taleb “Nassim N Taleb”
Modelling Extremal Events: for Insurance and Finance Stochastic Modelling and Applied Probability (Hardcover)
The mathematics of extreme events, or the remote parts of the probability distributions, is a discipline on its own, more important than any other with respect to risk and decisions since some domains are dominated by the extremes: for the class of subexponential and of course for the subclass of power laws the tails ARE the story.
Now this book is the bible for the field. It has been diligently updated. It is complete, in the sense that there is nothing of relevance that is not mentioned, treated, or referred to in the text. My business is hidden risk which starts where this book stops, and I need the most complete text for that.
In spite of the momentous importance of the field, there is a very small number of mathematicians who deal with tail events; of these there is a smaller group who go both inside and outside the “Cramer conditions” (intuitively, thin-tailed or exponential decline).
It is also a book that grows on you. I would have given it a 5 stars when I started using it; today I give it 6 stars, and certainly 7 next year.I am buying a second copy for the office. If I had to go on a desert island with 2 probability books, I would take Feller’s two volumes (written >40 years ago) and this one.One housecleaning detail: buy the hardcover, not the paperback as the ink quality is weaker for the latter.

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5.0 out of 5 stars Finally, a compendium of the most rigorous research (gamblers ruin based) on risky decisions, November 29, 2013

By N N Taleb “Nassim N Taleb”

This review is from: The Kelly Capital Growth Investment Criterion: Theory and Practice (World Scientific Handbook in Financial Economics) (Paperback)

There are two methods to consider in a risky strategy.

1) The first is to know all parameters about the future and engage in optimized portfolio construction, a lunacy unless one has a god-like knowledge of the future. Let us call it Markowitz-style. In order to implement a full Markowitz- style optimization, one needs to know the entire joint probability distribution of all assets for the entire future, plus the exact utility function for wealth at all future times. And without errors! (I have shown that estimation errors make the system explode.)

2) Kelly’s method (or, rather, Kelly-Thorpe), developed around the same period, which requires no joint distribution or utility function. It is very robust. In practice one needs to estimate the ratio of expected profit to worst- case return– dynamically adjusted to avoid ruin. In the case of barbell transformations, the worst case is guaranteed (leave 80% or so of your money in reserves). And model error is much, much milder under Kelly criterion. So, assuming one has the edge (as a sole central piece of information), engage in a dynamic strategy of variable betting, getting more conservative after losses (“cut your losses”) and more aggressive “with the house’s money”. The entire focus is the avoidance of gambler’s ruin.

The first strategy was only embraced by academic financial economists –empty suits without skin in the game — because you can make an academic career writing BS papers with method 1 much better than with method 2. On the other hand EVERY SURVIVING speculator uses explicitly or implicitly method 2 (evidence: Ray Dalio, Paul Tudor Jones, Renaissance, even Goldman Sachs!) For the first method, think of LTCM and the banking failure.

Let me repeat. Method 2 is much, much, much more scientific in the true sense of the word, that is rigorous and applicable. Method 1 is good for “job market papers” . Now this book presents all the major papers for the second line of thinking. It is almost exhaustive; many great thinkers in Information theory and probability (Ed Thorpe, Leo Breiman, T M Cover, Bill Ziemba) are represented… even the original paper by Bernouilli.

Buy 2 copies, just in case you lose one. This book has more meat than any other book in decision theory, economics, finance, etc…

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