Category Archives: Pdf

Nassim Taleb Papers – Recent Revisions

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NNT’s Author Page at SSRN.

New: A Map and Simple Heuristic to Detect Fragility, Antifragility, and Model Error Date posted: June 15, 2011

The Future Has Thicker Tails than the Past: Model Error as Branching Counterfactuals Date posted: May 24, 2011

Finiteness of Variance is Irrelevant in the Practice of Quantitative Finance Date posted: June 09, 2008 ; Last revised: June 08, 2011

The Illusions of Dynamic Replication Date posted: May 09, 2005 ; Last revised: June 08, 2011

Errors, Robustness, and the Fourth Quadrant Date posted: February 14, 2009 ; Last revised: June 08, 2011

Antifragility, Robustness, and Fragility, Inside the ‘Black Swan’ Domain Date posted: August 31, 2010 ; Last revised: June 06, 2011


 

The Future Has Thicker Tails than the Past: Model Error as Branching Counterfactuals by Nassim Taleb :: SSRN

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The Future Has Thicker Tails than the Past: Model Error as Branching Counterfactuals




Nassim Nicholas Taleb


NYU-Poly

May 23, 2011




Abstract:
    


Ex ante predicted outcomes should be interpreted as counterfactuals (potential histories), with errors as the spread between outcomes. But error rates have error rates. We reapply measurements of uncertainty about the estimation errors of the estimation errors of an estimation treated as branching counterfactuals. Such recursions of epistemic uncertainty have markedly different distributial properties from conventional sampling error, and lead to fatter tails in the projections than in past realizations. Counterfactuals of error rates always lead to fat tails, regardless of the probability distribution used. A mere .01% branching error rate about the STD (itself an error rate), and .01% branching error rate about that error rate, etc. (recursing all the way) results in explosive (and infinite) moments higher than 1. Missing any degree of regress leads to the underestimation of small probabilities and concave payoffs (a standard example of which is Fukushima). The paper states the conditions under which higher order rates of uncertainty (expressed in spreads of counterfactuals) alters the shapes the of final distribution and shows which a priori beliefs about conterfactuals are needed to accept the reliability of conventional probabilistic methods (thin tails or mildly fat tails).

Number of Pages in PDF File: 11

Janet Tavakoli: Where Were Drama Pundits — Whitney, Taleb and Gasparino — When It Mattered?

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I’m in receipt today of a collection of emails from Janet Tavakoli. You may recall some controversy around figures NNT was quoted to have said in a GQ article. I believe I’ve posted about this elsewhere on the blog. It’s from 2009. As you know, I have no relationship with Nassim Taleb, I’m simply collecting, in one place, information related to him and his ideas, for people who, like myself, find his thinking fascinating. I am a fan, certainly not a devotee. So in the interest of fairness, and perhaps also, to provide a place for Ms. Tavakoli to further make her case, I’m posting these links to various articles and documents she presents.

 

Taleb’s Stranded Swan? pdf TSF Commentary – June 3, 2009 By Janet Tavakoli

Taleb Kills $20 Billion Mythical Swan pdf

And via Janet Tavakoli: Where Were Drama Pundits — Whitney, Taleb and Gasparino — When It Mattered? | The Big Picture.
Taleb asserted the article was about philosophy, and one should ignore the numbers. The Times (among others) didn’t seem to see it that way. The Times’s original reference to GQ’s article focused on the erroneous $20 billion in trading gains months before Taleb made his correction in the face of media pressure. As for Taleb’s eventual explanation that the “$20 billion” referred to a “notional” amount of derivatives that produced between $250 to $500 million in gains, it raises further strategy questions.