Nassim Taleb gets angry
Oct
15
But in the process makes the point of how little we really understand the market
7 Comments to “Nassim Taleb gets angry”
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Hi, I’m Dan Ariely. I do research in behavioral economics and try to describe it in plain language. These findings have enriched my life, and my hope is that they will do the same for you.
The Honest Truth About Dishonesty: How We Lie to Everyone - Especially Ourselves
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The Upside of Irrationality, explores some positive and some negative ways that irrationality plays out in our lives.
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Your book and Taleb’s are side-by-side on my bookshelf, in fact. Both do a wonderful job of demonstrating why the “free market” doesn’t really have many of the advantages that people think it has.
Ever thought of areas of collaboration? Seems like he’s a little… umm… opinionated, but it seems like there are plenty of areas of overlap there.
NNT’s comment that we may just barely be in the beginning on this credit crises because the hedgies have yet to fully deleverage themselves is possibly the scariest thing I’ve heard in the last month. NNT is one of the guys that seems to “get it” and that is an extremely somber opinion.
The very fact that the interview was done with two other supposed experts in economics and finance with the host asking all the questions attests to the fact that we are at the beginning of a deleveraging process. The assumption that should be taken whenever taking risk is the worst case scenario rather than what is hoped to be the outcome. Which explains the reason why we’re in this mess to begin with. MBA’s in their mid-20′s who never experienced a bear market, let a lone a depression are now running things in the financial services industry.
All that one needs to know is that 95% of the investment industry is products instead of investments. Products are meant to derive commissions and fees and nothing else.
-Touc
“The Method of Doubt
The basic strategy of Descartes’s method of doubt is to defeat skepticism on its own ground. Begin by doubting the truth of everything—not only the evidence of the senses and the more extravagant cultural presuppositions, but even the fundamental process of reasoning itself. If any particular truth about the world can survive this extreme skeptical challenge, then it must be truly indubitable and therefore a perfectly certain foundation for knowledge”
Taleb’s frustration is with economic systems and their practitioners who believe they have a grasp of the world, when in his view they don’t. This he considers irrational and as hubris. Though it can be that, in my view his frustration is misdirected as it misses the human need for certainty. On a deeper level its roots lie in the striving by human beings to come to some understanding of the world around them in order to control it and ensure their own survival. That is to say, as an animal adapts to its environment to survive, human beings modify theirs for the same goal. That of course can only happen when there has been developed a reasonably firm idea on how that world operates. Deeper still, the function of the brain is to take disparate sense-data; light, vibration, scent, sound and shape it into patterns or experience useful for the organism to find a mate, food or escape a predator. This is consistent with the view human behavior is fundamentally irrational as actions and judgments are based on at the most basic level brain function, on the next level wants, needs, and desires.
I wish the entire dialog had been posted rather than just the excerpts. I’ve only been hearing interviews with Taleb and am awaiting my copy of Black Swan. But the very sober look on Barack Obama’s face, and the urgency of his tone, during his press conference on the economy on Friday tends to support Nassim’s thesis.
I will get his book tomorrow. He is one of the only people who I have seen who seems to have a full grasp of the issues to come. Those how “managed our risk” never took into account the possibility of failure. As talib mentioned, they used variances that never took into account investment performance failure. The number 0 was never a factor in their models. So, they could never show all of the risk factors if they did not factor in a worst case scenario.
It will take years to disentangle ourselves from the derivative debacle. Really, I don’t think we will disentangle, with the current and reinstated financial leaders in the US. After a few years, most will forget the lessons learned today and we Will repeat them. Bernake and Paulson are still financial leaders in this country and won’t be able to fix the issues.