Monthly Archives: May 2012

Friend, my central point…

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But the average of the function is as follows. Take the square of every payoff, 1^2+2^2+3^2+4^2+5^2+6^2 divided by 6, that is the average square payoff, and you get 15.67. So, since squaring is a convex function, the average of a square payoff is higher than the square of the average payoff. The difference, here between 15.67 and 12.25 is what I call the hidden benefit of antifragility —here 28 percent “edge”. The conflation problem mistaking a property of a function of something for the function of the property of something leads to severe misunderstanding of the process.

The hidden benefit of antifragility is that you can guess worse than random and still end up outperforming. Here lies the power of optionality —your function of something is very convex, so you can be wrong and still do fine —the more uncertainty , the better.The hidden harm of fragility is that you need to be much, much better than random in your prediction and knowing where you are going, just to offset the negative effect.The property is called Jensen’s inequality and I use a variant of it. This is what the common discourse on innovation is missing. If you ignore Jensen’s inequality, you are missing a chunk of makes the nonlinear world go round. And it is the fact that such idea s missing totally from the discourse. Sorry.

via Friend, my central… | Facebook.

Nassim Taleb Responds To Bloomberg Article – Business Insider

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Apparently the NNT quotes Bloomberg posted earlier today (and to which I posted a link) were taken out of context and NNT isn’t too happy about it.

So why is Taleb so furious?

Basically he says he wasn’t giving investment advice at all, and that he was giving an hour-long lecture on anti-fragility and risk, and that he was making a long-term structural call based on the fact that Europe was moving towards decentralization (which in his book is good), even if in the meantime they have to break a few eggs.

He insists the lecture had nothing to do with investment advice, and that it was just a discussion of structure.

The line about “fun” currencies, he says, was a joke.

Here are some quotes from our call with him.

———–

“It’s very simple I was giving a lecture on risk management.”

“Two problems in the long run of risk.” The first problem is deficits. The second one is centralization.

“I’m making a broader long-term call”

“I’m making a long-term risk management call.”

“I was massively angry”

“I spoke for an hour on methods of my risk heuristics.”

“And these f*cks, all they did, and take out of context comments on investment

“They’re going in the right direction, but they’re going to break some eggs.”

“This is not a market call, this is a structural call.”

Europe is decentralizing. The US is “Obamaizing”

“I was presenting my book on the idea of anti-fragility.”

“He turned me into an investment caller like all these,”

“They made it a caricature of what I said.”

“Gross caricature.”

via Nassim Taleb Responds To Bloomberg Article – Business Insider.
Thanks Dave!

Noise and Signal — Nassim Taleb | Farnam Street

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The more frequently you look at data, the more noise you are disproportionally likely to get (rather than the valuable part called the signal); hence the higher the noise to signal ratio. And there is a confusion, that is not psychological at all, but inherent in the data itself. Say you look at information on a yearly basis, for stock prices or the fertilizer sales of your father-in-law’s factory, or inflation numbers in Vladivostock. Assume further that for what you are observing, at the yearly frequency the ratio of signal to noise is about one to one (say half noise, half signal) —it means that about half of changes are real improvements or degradations, the other half comes from randomness. This ratio is what you get from yearly observations. But if you look at the very same data on a daily basis, the composition would change to 95% noise, 5% signal. And if you observe data on an hourly basis, as people immersed in the news and markets price variations do, the split becomes 99.5% noise to .5% signal. That is two hundred times more noise than signal —which is why anyone who listens to news (except when very, very significant events take place) is one step below sucker.

via Noise and Signal — Nassim Taleb | Farnam Street.
HatTip to Dave Lull.

Hay Festival – Nassim Nicholas Taleb

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NNT and Danny Kahneman are at the Hay Festival (UK) this weekend!

Nassim Nicholas Taleb

Event 117 • Sunday 3 June 2012, 4pm • Venue: Llwyfan Cymru – Wales Stage

AntiFragility

The visionary probability guru and Black Swan author previews his study of How to Live in a World We Don’t Understand.

Price: £6.25

Sponsored by Richard Booth’s Bookshop

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[55] Daniel Kahneman Saturday 2 June 2012, 4pm

via Hay Festival – Nassim Nicholas Taleb.
HatTip to Dave.

Taleb Says Euro Breakup ‘Not a Big Deal’ as U.S. Scariest – Businessweek

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A breakup of the euro “is not a big deal,” Taleb said yesterday at an event in Montreal hosted by the Alternative Investment Management Association. “When they break it up, there will be a lot of fun currencies. This is why I am not afraid of Europe, or investing in Europe. I’m afraid of the United States.”

The budget deficit as a proportion of gross domestic product in the U.S. amounted to 8.2 percent at the end of 2011, government figures show. That’s twice the 4.1 percent ratio for euro-region countries, according to data compiled by Bloomberg.

“Of course Europe has its problems, but it’s in much better shape than the United States,” Taleb said. He voiced similar concerns about U.S. prospects at a conference in Tokyo in September.

via Taleb Says Euro Breakup ‘Not a Big Deal’ as U.S. Scariest – Businessweek.
HatTip to Dave Lull!