

Nassim Taleb and Benoit Mandelbrot on the Economy - nir
http://www.pbs.org/newshour/bb/business/july-dec08/psolman_10-21.html

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mkn
I've started typing about 5 comments and deleted them all. They don't seem to
be saying enough to even warrant comment.

When asked about what could happen, there was some talk about a default
cascade leading to depressed prices [waves arms] and a grocery store can't
make payroll because they can't find a bank to give them a loan secured
against their inventory. Now, I don't think he's wrong that we could see
grocery stores not making payroll, nor that a default cascade could lead to
that. I just think that the arm waving part is what saves us all. If things
really do get that bad, then new systems will be formed of necessity. For
example, some of those grocery store employees could take a portion of their
pay in store credit, micro-lenders could come to the aid of the store (micro-
lenders that include the employees), barter will happen, illiquid assets will
be traded, and so on.

Not that it will be pretty, or that their won't be real pain, but there are
ways to eke by.

Also, I think the most telling comment of the interview was when Mandelbrot
said that we couldn't calculate the odds of a catastrophe like this. Taken to
it's logical conclusion, this kind of means that we can't tell if we should
even be paying attention to these two on this matter. (I know. Mandelbrot. But
even Homer sometimes nods.)

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senihele
I'm not sure about your last point. It seems there are some extremely
important implications from the determination that "black swan" events are
often of incalculable risk. I already posted the link farther down the thread,
so I won't repost it, but I highly recommend reading the article - it is
written by Taleb and reframes this concept in terms of the current crisis. It
really is one of the most interesting high level overviews of the problem I
have come across.

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dood
Always going to be worth watching, but kind of a shame that they had to talk
on such a basic level. I'm sure a 30 minute conversation with those two could
be very interesting.

Wasn't a whole lot more than them explaining that the system is very complex
and hard to predict, and worringly prone to catastrophic events.

~~~
bd
Well, they did mention one fundamental problem which also hints at the
solution: the system is _too optimized_ thus it is very fragile, susceptible
to amplify even tiny perturbations.

Basically, we need to give up some performance and uncouple interacting
elements to get more resilient system.

~~~
dood
Good point, would have liked them to talk about possible ways ameliorate this
factor.

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kul
funny how they labelled Taleb an economist, that must have riled him

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Ben65
I was about to add nearly the same comment.

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gills
Video here:
[http://www.pbs.org/newshour/video/module.html?mod=0&pkg=...](http://www.pbs.org/newshour/video/module.html?mod=0&pkg=21102008&seg=5)

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ced
_The behavior of economic phenomena is far more complicated than the behavior
of liquids or gases._

Is predicting the result of a coin toss complicated?

Analogy aside, I don't think one can compare the two. Economics deals with a
huge (huge!) quantity of information in doing a prediction. If there was a
human that could somehow process all the news, weather forecasts, CEO
interviews and financial information, I don't think it would be that hard for
him to make predictions, even on a global scale. The issue is that we attempt
to capture all this complexity through a handful of insufficient abstractions.
It works sometimes. Sometimes it doesn't, much like predicting the weather
from a barometer.

If all that information would be quantifiable numerically (syndicate pressure
= 0.34) I'm confident that we would have good models and predictions. Models
in economy share a lot of the pain of models in biology.

In contrast, for predicting the detail of fluid turbulence or mathematical
chaos, the problems are very easy to state, and there is very little
information to process. Their mathematical solution and their numerical
stability is what makes them complicated.

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mdemare
I'm dying to know Taleb's thoughts on the crisis, but this video is aimed at
10 year olds. Don't bother.

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MaysonL
There's a good video he gave earlier this year at
[http://fora.tv/2008/02/04/Future_Has_Always_Been_Crazier_Tha...](http://fora.tv/2008/02/04/Future_Has_Always_Been_Crazier_Than_We_Thought)

Aimed at a somewhat more advanced audience.:-)

~~~
antiismist
I saw that talk back then ... it is a lot easier to follow his writing than
his talking.

