

The Fourth Quadrant: a Map of the Limits of Statistics (by Nassim Nicholas Taleb) - namin
http://www.edge.org/3rd_culture/taleb08/taleb08_index.html

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blakeweb
Reading this essay through completely has done more for my understanding of
the current crisis than other single thing I've read, I'm pretty sure.

You have to be willing to deal with terrible grammar, but aside from that this
essay makes the necessary points about as succinctly as you could, I think. It
still takes a while to get through, but very worthwhile.

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SirWart
I really like this essay. It almost makes too much sense, like it is too
simple an idea to have gone ignored for this long, but the premise is hard to
argue with: you can't accurately predict events that happen very rarely (on
the time scale that we have accurate measurements for) that have extreme
outcomes.

Also, reading this reminds me how doomed younoodle.com is.

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lliiffee
Ah, but just because you can't accurately predict events doesn't mean you
can't convince people you can accurately predict events.

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wynand
Perfect timing given the current financial crisis which was triggered in part
by an over reliance on (inaccurate) statistical models.

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blakeweb
I'm pretty sure the timing is planned rather than coincidental. He mentions
the "busts" of both Bear and Lehman in the notes on figure 2.

Or maybe I'm misunderstanding you and you mean the timing of his release of
'black swan'.

If so, I still have to say that from what I can tell, Taleb has been espousing
these same ideas for several years, so it's still not just coincidence that
his ideas are getting a wider audience at the same time that the meltdown he
warned about is taking place.

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Angostura
The essay makes this assertion a couple of times: "The banking system .. just
lost > 1 Trillion dollars (so far) on a single error, more than was ever
earned in the history of banking."

Really, more than was ever earned in the history of banking? To me that would
seem to imply that at this point every banking institution would be bankrupt.

Shouldn't a guy who chides people for sloppy thinking be rather more careful,
or am I just missing something and being stoopid?

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jfoutz
It's easy to confuse the value banks create with the money they have on hand.
For example, take a look at bank of america. They earn about 1.80 for every
share outstanding, and there are about 4.5 billion shares. so BofA creates
about 8.1 billion of value every year (given todays rates). So with a loss of
a trillion dollars, it would take BofA 123 years to make that back.

You have to remember, banks take a tiny fraction of a ton of money. They make
the promise, give me a buck today, and i'll give you back $1.02 in a year,
with no risk. You created all the value in the initial dollar, they just make
the 2 cents. So, when a bank doesn't even give you your dollar back, they wipe
out a _ton_ of value.

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hs
this part is relevant to startups: (see figure 7)

"A biotech company (usually) faces positive uncertainty, a bank faces almost
exclusively negative shocks. I call that in my new project "concave" or
"convex" to model error."

concave to model error: Bank, Short volatility, security

convex to model error: Long options, biotech, technology, entrepreneurship,
etc

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mooneater
I find his ideas fascinating. I also wish he had a much better editor, with
good grammar.

So I guess he is saying startups have a small but real chance of massive
success. True, maybe obvious, but still music to my ears!

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zurla
Taleb is the man.

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gz
I think he would totally agree with you. Try to read Fooled by Randomness to
see what I mean. I gave up after the first few chapters because I couldn't
stand his unstructured - almost incomprehensible at times - arrogant, self-
referential prose. Perhaps he has a lot to say, I just wish he could write
too.

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scott_s
I slogged through The Black Swan with the same attitude. He had some good
insights, but he was so pompous I had difficulty following his reasoning. I'd
continually get derailed when I encountered something that I thought was pure
self-promotion.

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Prrometheus
There is no greater crime in this country than creating something of value and
being proud of it.

Other people often called "arrogant" - Paul Graham, Steve Jobs, etc.

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scott_s
Be proud all you want. Just be able to explain your idea clearly. Taleb
intersperses self-promotion in his explanations, which muddies them.

His writing style in general is meandering and lacks focus. The book I read
had a handful of insights amid pointless narration. I read books like _The
Black Swan_ to learn new ideas, not to learn how great the author is.

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kul
<3

