
Gaussian vs. Mandelbrotian: The Great Intellectual Fraud - zzzmarcus
http://books.google.com/books?id=YdOYmYA2TJYC&lpg=PA229&dq=%22the%20bell%20curve%20that%20great%20intellectual%20fraud%22&pg=PA229#v=onepage&q=%22the%20bell%20curve%20that%20great%20intellectual%20fraud%22&f=false
======
waldrews
Sigh. Him again.

Yes, he's unfortunately worth reading, for the drama and stimulation and
calling attention to things that are known but not always fully appreciated.
But I wish he wasn't worth reading.

His hero Mandelbrot on the other hand? A real scholar with radical ideas, not
a provocateur.

The important ideas in his book are well known by thinkers, if not all
practitioners, in the fields he criticizes. But, oh, the insults! And so much
of what he says is "Such and such models have flaws! Throw them away and do
nothing at all until you have perfect models!" That's not terribly useful if
you are, say, running an insurance firm. Or doing science.

Anyway, here's the issue of American Statistician duly taking him to task on
the technicalities, though unfortunately without the bombast and mud-slinging.

<http://pubs.amstat.org/toc/tas/61/3>

Also could somebody explain to me why hacker types like to name-check Popper
but never Kuhn? Is it because the Star Trek TNG episode with the Binars
actually got it right?

~~~
moss
Regarding name-checking of Popper vs. Kuhn:

Kuhn and Popper both make interesting observations about the development of
science. However, Popper's observations are more directly applicable to the
task of actually doing science. He gives a useful framework for developing and
testing theories, where Kuhn's work has more to say about how theories become
widely accepted. So Popper appeals to the pragmatism of most hackers.

Kuhn is also, sadly, very popular with crackpots. Almost any fringe scientist
will eagerly explain to you that his ideas represent "a new paradigm", and
that those who doubt him are simply trapped in old ways of thinking. So a
desire to avoid guilt by association probably also plays into it.

That's my take on it anyway. (I know it's kind of a tangent, but it seemed
like an interesting thing to think through).

------
jwecker
Highly, highly recommend this book to anyone who hasn't taken the time yet.
Not all that revolutionary for anyone firmly grounded in the real ins and outs
of probability, but surprisingly revolutionary for those who know just enough
probability to be dangerous, so to speak.

~~~
osipov
Given the audience on HN I recommend the very readable "Misbehavior of
Markets" by Mandelbrot. Everything worth reading in Taleb's book is a dumbed
down rehash of Mandelbrot's ideas.

~~~
Perceval
I agree. Might as well just read Popper and Hume and cut out the middle-man.

~~~
osipov
Did Popper and/or Hume write about markets?

------
zzzmarcus
Full version of the chapter here:
<http://issuu.com/azureo/docs/the_black_swan/1?mode=a_p>

Issuu doesn't have a deep-linking feature.

------
viggity
If anyone wants to know what the ten deutschmark bill looks like:

<http://www.cunymath.cuny.edu/images/sidebar/gauss_10_DM.jpg>

~~~
duncanj
I could totally hang out with that guy. Taleb's a fool.

------
perkoff
Why is Taleb getting all this mainstream attention? The finance guys have been
aware of fail tail distributions all along.

As Eugene Fama points out on his website...
[http://www.dimensional.com/famafrench/2009/03/qa-
confidence-...](http://www.dimensional.com/famafrench/2009/03/qa-confidence-
in-the-bell-curve.html)

"Half of my 1964 Ph.D. thesis is tests of market efficiency, and the other
half is a detailed examination of the distribution of stock returns.
Mandelbrot is right. The distribution is fat-tailed relative to the normal
distribution. In other words, extreme returns occur much more often than would
be expected if returns were normal. There was lots of interest in this issue
for about ten years. Then academics lost interest. The reason is that most of
what we do in terms of portfolio theory and models of risk and expected return
works for Mandelbrot's stable distribution class, as well as for the normal
distribution (which is in fact a member of the stable class)."

~~~
oakmac
The finance guys may have been aware of it, but their actions were clearly not
in line with this knowledge as evidence by the year 2008.

From the article you linked: "None of this implies, however, that the
existence of outliers undermines modern portfolio theory or asset pricing
theory."

In fact, that's exactly what it does. This is what happens when you build
houses on top of sand.

~~~
perkoff
Big crashes will always occur, but I would not blame the recent crash on the
gaussian models. I'd rather say that (almost) everyone underappreciated the
risks connected to the real estate prices.

Taleb pushes for a strategy that consists of buying a lot of very safe assets
and blending them with bets on "extreme events" (like buying far out-of-the-
money put options). Is that a viable long-term strategy? I have my doubts,
since there are no evidence suggesting that 'uncertain' strategies have
greater returns that more quantified ones.

~~~
jwecker
Since Taleb started thinking through this stuff he's been able to cash out on
two big crashes- just in the last 10 years. The second (current) one came
after the black swan was published. It's almost erie reading it now. In any
case, he's not advocating that everyone use that as a trading strategy. What
he's advocating is that people be aware of the nature of the underlying system
and stop fooling ourselves into thinking that it's "gaussian + weird things
that are obvious in retrospect."

------
mmt
"Take a random sample of any two people from the U.S. population who jointly
earn $1 million per annum."

This is where the author loses me. Where is the randomness of the sample, when
there are two items which are interdependent?

Later, he criticizes standard deviation as applied to stocks and bonds
(decidedly non-random data), finding fault with the bell curve, rather than
the misapplication.

Does this chapter make any more sense in the context of the entire book?

~~~
mbrubeck
"Where is the randomness of the sample, when there are two items which are
interdependent?"

Given all pairs of people whose join income is $1M, select a pair at random.
"All pairs" is an unusual population to select from, but mathematically it's a
perfectly valid way to define a random variable.

~~~
mmt
This makes sense, to be, so, perhaps, I'm confused by how he would then go on
to talk about the individual values that make up the pair.

Is that, then, exactly his point? That a random sample of a group can't be
modeled like a group of random samples, yet this is what's being done?

------
dspeyer
Google Books cut off before he got to explaining what the fraud was. Does
anyone know?

He seemed to be complaining about assuming distributions were normal without
checking, a simple mistakes that is warned against in any introductory
statistics class.

