Monthly Archives: May 2011

John Cleese – interview – The legendary ex-Python talks to us ahead of his wide-ranging Alimony Tour | The List

Shared by JohnH

Nice Find! HatTip to Dave Lull.

Before that, he’s writing his next one-man show, Why There is No Hope, a ‘cutting-edge’ satirical production based on philosopher and finance mathematician Nassim Nicholas Taleb’s Black Swan theory about unexpected events of large magnitude. Popularised in the aftermath of the credit crunch, Taleb’s theory for Cleese essentially boils down to the idea that we can never predict the unexpected and that so-called experts are invariably ‘hopeless’. ‘The implication is that there’s no hope if we go on the way we are, and that kind of research lends itself to very funny conclusions. [Taleb] is an unbearably vain main of course, but what he says is absolutely fantastic.’

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

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