Nassim Nicholas Taleb の "Fooled by Randomness" を(すでに図書館で借りて読んでるんだけどいつでも好きな時に参照できるようにと)思い切って購入した。経済書に分類されているが経済に関わらずあらゆる示唆に富む名著だと思う。

Shared by JohnH

Think I missed this. From July, 2009

The core of the problem, the unavoidable truth, is that our economic system is laden with debt, about triple the amount relative to gross domestic product that we had in the 1980s. This does not sit well with globalisation. Our view is that government policies worldwide are causing more instability rather than curing the trouble in the system. The only solution is the immediate, forcible and systematic conversion of debt to equity. There is no other option.

Our analysis is as follows. First, debt and leverage cause fragility; they leave less room for errors as the economic system loses its ability to withstand extreme variations in the prices of securities and goods. Equity, by contrast, is robust: the collapse of the technology bubble in 2000 did not have significant consequences because internet companies, while able to raise large amounts of equity, had no access to credit markets.

HatTip to Dave Lull

117– Postscript to The Black Swan (second edition, paperback inUS): Where I Lose All Inhibitions and State That It Is The MostRelevant Problem in the History of Thought

Until The Black Swan (and associated papers) most of epistemology and decision theory were just sterile mind-games and foreplay.  I am going to be blunt. The Black Swan (hence TBS)  is the very first attempt in the history of ideas to provide a map in the darkness,  to set systematic limits to the fragility of knowledge, and set boundaries to where such knowledge becomes fragile and consequentially so –where the map no longer works. And it is the very first time a real effective, prescriptive, and, to call it by its name, vulgarly practical,solution to the consequential problem has been provided.

Furthermore, to be more aggressive, while limits like those attributed to Gödel bear massive philosophical consequences, but we can’t do much about them, I believe that the limits to empirical and statistical knowledge I have shown have both sensible (if not vital) importance and we can do a lot with them in terms of solutions, by categorizing decisions based on the severity of the potential estimation error of the pair probability times consequence –with the Fourth Quadrant approach.

I

The most consequential problem I know in the history of human thought, ever since we’ve had attempts to formulate thought, is finding one’s position on the boundary between skepticism and gullibility, or  how to believe and how to not believe. And how to make decisions based on these beliefs –beliefs without decisions are just sterile. So  this is not an epistemological problem (i.e., focusing on what is true or false); it is one of decision, action, and commitment.

Clearly, you cannot doubt everything and function; you cannot believe everything and survive.  Yet the philosophical treatment of the problem has been highly incomplete, and, worse, has not improved much throughout the centuries. One class of thinkers,say the Cartesians, or the academic skeptics, some eighteen centuries before them, in their own way, started with the rejection of everything upfront, with some even more radical like the Pyrrhonians rejecting so much that they even reject skepticism as too dogmatic in their opinion. The other class, say the Medieval scholastics, or the modern day pragmatists, start with the fixation of beliefs, or some beliefs.  While the medieval thinkers stop there, in an Aristotelian way, the early pragmatists, with the great thinker Charles Sanders Peirce, provided a ray of hope. They proposed to update and correct beliefs as a continuous work in progress.  They view knowledge as mere interplay between anti-skepticism and fallibilism, i.e., between the two categories of what to doubt and what to accept. The application to my field, probability, and perhaps the most sophisticated version of such program, lies in the dense, difficult, deep, and brilliant forays of  Isaac Levi into decision theory with the notion of doxastic commitment, degrees of credence, as probabilities as credal states.

Ray of hope perhaps, but still not even close.

Think of living in a three dimensional space while under the illusion of being in two dimensions. Of course, you will not be awareof the truncation –and will be confronted with many mysteries,mysteries that you cannot possibly clear up without adding ad imension. And of course you will feel helpless at times. Such was the fate of knowledge all these centuries; by focusing on True/False distinction in epistemology, it remained with very few exceptions,prisoner of an inconsequential, and highly incomplete, 2-D framework. The third missing dimension is, of course, the consequence of the True, and the severity of the False. In other words, the payoff from decisions, the impact, and magnitude of the result of such a decision. Sometimes one could be wrong and it may turn out to be inconsequential. Or one could be right, say, on such a subject as the sex of Angels, and it may turn out to be completely inconsequential.

Once you start examining the payoff, the result of decisions, you will see clearly that some  may be benign, some may be severe.And you pretty much know which one is which beforehand. You know which errors are consequential and which ones are not.

II

I will provide a short exposition of the first result of my work:knowledge degrades markedly with small probabilities; theories fail most with low probability events; some domains (easy to identify beforehand) are more vulnerable to such events. Hence theoretical and model error are more consequential in the tails and some representations are more fragile than others.

III

What to do about is as follows. When you look at the generator o fthe events, you can tell which environment can deliver large events (Extremistan) and which environment cannot deliver them (Mediocristan).

So that’s that. You know that there are:

I- Situations in which errors and opportunities are inconsequential

and

II- Situations sensitive to extreme errors or extreme favorable outcomes

and which

a- Event generators belong to Mediocristan (i.e., it is close to impossible for very large deviations to take place)

b- Event generators belong to Extremistan (i.e., very large deviations are likely)

(Luckily the distinction between the two is easy to establish a priori).

So clearly your doubts and verbose worries are inconsequential inI-a, I-b, and II-a. You need to focus on avoiding II-b, which I call the Fourth Quadrant.

The Fourth Quadrant, II-b, is where our knowledge is fragile,where it could bite us, and where mistakes can have monstrous consequences.  And the good news is that we can robustif yourselves against the induced fragility.

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From 1997!

Against VAR

By Nassim Taleb

Philippe Jorion is perhaps the most credible member of the pro-VAR camp. I will answer his criticism while expanding on some of the more technicalstatements I made during the interview (Derivatives Strategy, December-January).Indeed, while Jorion and I agree on many core points, we mainly disagreeon the conclusion: mine is to suspend the current version of VAR as potentiallydangerous malpractice, while his is to supplement it with other methods.

My refutation of VAR does not mean that I am against quantitative riskmanagement-having spent most of my adult life as a quantitative trader,I learned the hard way the pitfalls of such methods. I am simply againstthe application of unseasoned quantitative methods. I think that VAR wouldbe a wonderful measurement if financial models were designed for that purposeand if we knew something about their parameters. The validity of VAR islinked to the problem of probabilistic measurement of future events, particularlythose deemed infrequent (more than two standard deviations) and those thatconcern multiple securities. I conjecture that the methods we currentlyuse to measure such tail probabilities are flawed.