Monthly Archives: January 2014

Nassim N Taleb’s review of Modelling Extremal Events: for Insurance and Finance Stochastic Modelling and Applied Probability

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.

via Amazon.com: N N Taleb “Nassim N Taleb”‘s review of Modelling Extremal Events: for Insurance a….
HatTip to Dave Lull

Nassim Taleb Twitter – Business Insider

Author and philosophical finance whiz Nassim Taleb began 2014 with a bold challenge to his fellow economic thinkers.

“I would love to debate a prominent economist LIVE in front of an audience… Nobody has accepted so far,” he wrote on his Facebook page a few days ago.

So who is up for the challenge?

“I think any economist who debated Taleb would want to use this,” The Week’s John Aziz quipped on Twitter, pointing to this 2010 interview where Taleb argues shorting treasuries is a “no brainer” due to the U.S. deficit and the risk of inflation.

“So long as you see the picture of Larry Summers going to Davos, you have to stay short U.S. Treasuries for another year. It means they (the Obama administration) don’t know what’s going on,” Taleb told MoneyNews’ Dan Weil in 2010.

Taleb went off on Aziz and others, arguing that his actual profit and loss (“PL”) wasn’t indicative of his 2010 statement, which would have presumably lost money.

via Nassim Taleb Twitter – Business Insider.

Overweening Generalist: Promiscuous Neurotheologist: The Atheologies of Nassim Nicholas Taleb and Robert Anton Wilson

NNT thinks that if religion has survived for millennia we shouldn’t uproot it unless we can be damned well sure we can replace it with something less damaging. But we cannot be sure, right?

Like the late Robert Bellah and Robert Anton Wilson, NNT thought religion was not about “belief” but about action, and it starts with ritual. We have ideas about “God” all mixed up. Most religions started off with rituals, then developed deities post hoc. Religion makes people do things, and then the King arrives and uses the local religion for social control.

Further, NNT sees very strong historical lessons in Christianity and Islam that support his idea that history does not crawl but “jumps” and is best not thought of as something that develops slowly and relatively predictably: in noting the paucity of extant writings by contemporary thinkers in or near Jesus’s time, “Apparently, few of the big guns took the ideas of a seemingly heretical Jew seriously enough to think he would leave traces for posterity.” And: “How about the competing religion that emerged seven centuries later; who forecast that a collection of horsemen would spread their empire and Islamic law from the Indian subcontinent to Spain in just a few years? Even more than the rise of Christianity, it was the spread of Islam the third edition, so to speak that carried full unpredictability; many historians looking at the record have been taken aback by the swiftness of the change.” NNT follows up these observations by making a general note about our study of history: “These kinds of discontinuities in the chronology of events did not make the historian’s profession too easy: the studious examination of the past in the greatest detail does not teach you much about the mind of History; it only gives you the illusion of understanding it.” p.11, op.cit

Illusions of understanding: this is at the heart of NNT’s work.

via Overweening Generalist: Promiscuous Neurotheologist: The Atheologies of Nassim Nicholas Taleb and Robert Anton Wilson.
HatTip to Dave Lull

BARBELL & LOGIC: A logical error in dealing with… – Nassim Nicholas Taleb

BARBELL & LOGIC: A logical error in dealing with the notion of “average” is to think that, in a conflict in which we are outsiders, the middle ground is likely to be right, instead of considering that each side has a 50% probability of being 100% right, and the middle ground is the least likely to be correct.

We make such mistakes in intellectual life but not in naturalistic settings. When you tell people that a woman has 50% percent probability of being pregnant, (50% of being not pregnant) but 0% probability of being half-pregnant, they get it. Replace “pregnant” with “right” and see that you are likely to make the error.

This leads many to avoid barbells by having only “moderate” risks or “moderate” opinions.

The only time I got angry with Robert Shiller was when, in 2006, he said that I was “sort of” right (about the risks in the system) but was too extreme and needed “moderation”. Actually philosophers know about fallacy in the “argument to moderation”: https://en.wikipedia.org/wiki/Argument_to_moderation

via BARBELL & LOGIC: A logical error in dealing with… – Nassim Nicholas Taleb.