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Nassim Nicholas Taleb
Born	1960 (age 49–50) Amioun, Lebanon
Residence	United States, United Kingdom, Lebanon
Fields	Scholar, essayist, epistemologist, statistician, risk engineer and trader
Institutions	Polytechnic Institute of New York University, Oxford University
Alma mater	Wharton School at the University of Pennsylvania (MBA), University of Paris Dauphine (Ph.D.)
Doctoral advisor	Hélyette Geman
Known for	Applied epistemology, philosophy of statistics, bestselling books, warnings before crisis, anti-Platonism
Influences	Sextus Empiricus, Montaigne, Menodotus of Nicomedia, Henri Poincaré, Karl Popper

Nassim Nicholas Taleb (Arabic: نسيم نيقولا نجيب طالب‎, alternatively Nessim or Nissim, born 1960) has three distinct careers^[1][2] (literary, scientific, and business) built around what he calls "epistemic limitations and constraints" (probability, uncertainty and the fragility of human knowledge): 1) bestselling literary essayist,^[3] 2) university professor in risk engineering (Distinguished Professor level), scholar, epistemologist, philosopher of science (probability and statistics), and 3) senior Wall Street trader, hedge fund manager, and practitioner of mathematical finance.^{[4] [5][6][7][8]} Taleb has been critical of the finance industry and has been credited with making predictions regarding financial crises and making a fortune out of the 2008 crisis.^[9][10] Taleb is an activist and a promoter of what he calls a "Black Swan robust" society as well as aggressive "stochastic tinkering" as a means of scientific discovery.^[11]

Taleb is a bestselling author with 2.7 million copies sold in 31 languages.^[12][13] His idiosyncratic writing style mixes narrative fiction (often semi-autobiographical) and short philosophical tales with historical and scientific commentary.

Taleb's best-known book, The Black Swan, has been described by The Times as one of the 12 most influential books of the past 60 years.^[14] Among the people Taleb has influenced are the writer Malcolm Gladwell ^[15][16] and the British Tory leader David Cameron,^[17] who uses his black swan robustness idea as "intellectual ballast" for his program.

Biography

Taleb originates from Amioun, Lebanon. His political Greek Orthodox Levantine family saw its prominence and wealth reduced by the Lebanese Civil War which began in 1975. He is the son of Dr. Najib Taleb, an oncologist and researcher in anthropology, and Minerva Ghosn. Both sides of his family were politically prominent in the Lebanese Greek Orthodox community: on his mother's side, his grandfather and his great-grandfather were both deputy prime ministers of Lebanon; on his father's side, his grandfather was a supreme court judge and, in 1861, his great-great-great-great grandfather was a governor of the Ottoman semi-autonomous province of Mount Lebanon.

Taleb received his bachelors and masters in science from the University of Paris^[18] and holds an MBA from the Wharton School at the University of Pennsylvania, and a PhD in Management Science (thesis on the mathematics of derivatives pricing) from the University of Paris (Dauphine)^[19] under the direction of Hélyette Geman.^[20]

Taleb, a polyglot, has a literary fluency in English, French, and classical Arabic, a conversational fluency in Italian and Spanish, and reads classical texts in Greek, Latin, Aramaic, and ancient Hebrew, as well as the Canaanite script.^[21][22]

Finance career

Taleb wrote in Fooled by Randomness that he considers himself far less a businessman than an epistemologist of randomness and used trading to attain his independence and freedom from authority ^[23]. As a trader, he has held the following positions: Managing director and proprietary trader at UBS; worldwide chief proprietary arbitrage derivatives trader for currencies, commodities and non-dollar fixed income at CS-First Boston; chief currency derivatives trader for Banque Indosuez; managing Director and worldwide head of financial option arbitrage at CIBC-Wood Gundy; derivatives arbitrage trader at Bankers Trust, proprietary trader at BNP Paribas, as well as independent option market maker on the Chicago Mercantile Exchange; and founder of Empirica LLC after which Taleb retired from trading and became a full-time author and scholar in 2004.^[24] Taleb is currently Principal/Senior Scientific Adviser at Universa Investments, the Santa Monica, California, fund owned and managed by former Empirica partner Mark Spitznagel.

Writing and research career

Taleb became a full time researcher in 2004, as a university professor and writer. He is currently Distinguished Professor of Risk Engineering at Polytechnic Institute of New York University,^[25] and Distinguished Research Scholar, Said Business School, Oxford University.^[26] He was Visiting Professor at London Business School and the Dean’s Professor in the Sciences of Uncertainty at the Isenberg School of Management at the University of Massachusetts Amherst, Adjunct Professor of Mathematics at the Courant Institute of New York University, and affiliated faculty member at the Wharton Business School Financial Institutions Center. He jointly teaches regular courses with Paul Wilmott and occasionally on the Certificate in Quantitative Finance.

In 2008-2009, he ranked fifth, in terms of the number of downloaded papers, on the Social Science Research Network (SSRN).^[27] His second nontechnical book, The Black Swan sold (according to Slate), as of March 2009, close to 1.5 million copies.^[12] It also spent 17 weeks on the New York Times Bestseller list ^[28] and was translated into 31 languages.^[28] "The Black Swan" has been credited with predicting both its own success (through the fate of his character Yevgenia Krasnova) and the banking and economic crisis of 2008. The sales of Taleb's first two books garnered an advance of $4 million for a follow-up, tentatively titled "Tinkering."^[28]

Epistemology and theories of randomness

Taleb's epistemology is focused on what he calls "opacity" (i.e., epistemic constraints) and relates loosely to traditions of skeptical empiricism, but:

1. His skepticism is focused on one single class of events; the fundamental incomputability of the probability of consequential rare events from empirical observations ("Black Swans"), though he accepts that scientific knowledge can deal with the regular ones. Taleb advocates gullibility for things that make us human without adverse consequences, matters in "Mediocristan".^[29]
2. Taleb's empiricism implies resisting generalization from data and limiting the derivation of general rules from particular observations as one can be missing hidden properties. Thus he believes that scientists, economists, historians, policy makers, businessmen, and financiers are victims of an illusion of pattern. They overestimate the value of rational explanations of past data, and underestimate the prevalence of unexplainable randomness in those data.
3. Taleb advocates the construction of a society around the concept of "Black Swan Robustness", by lessening the effects of interdependence associated with the low predictability of a complex system, particularly with a certain class of events he calls "extremistan".

Taleb put a psychological, mathematical, and (mostly) practical framework around the philosophical problems in a long lineage of skeptical philosophers, including Socrates, Sextus Empiricus, Al-Ghazali, Pierre Bayle, Montaigne, David Hume and Karl Popper in believing that we know much less than we think we do, and that the past should not be used naively to predict the future. Furthermore, as a practitioner he creates a decision-making framework of "how to act under incomplete understanding, imperfect information". Taleb wrote that most people ignore consequential rare events that he calls "Black Swans" because we are more comfortable seeing the world as something structured, ordinary, and comprehensible. Taleb calls this blindness "the Platonic fallacy" and argues that it leads to three distortions:

1. Narrative fallacy: creating a story post-hoc so that an event will seem to have an identifiable cause,
2. Ludic fallacy: believing that the unstructured randomness found in life resembles the structured randomness found in games. Taleb faults random walk models and other inspirations of modern probability theory for this inadequacy,
3. Statistical regress fallacy: believing that the structure of probability can be delivered from a set of data.

He also believes that people are subject to the triplet of opacity, through which history is distilled even as current events are incomprehensible. The triplet of opacity consists of

1. an illusion of understanding of current events,
2. a retrospective distortion of historical events,
3. an overestimation of factual information, combined with an overvalue of the intellectual elite.^[30]

Taleb, an anti-Platonist, believes that universities are better at public relations and claiming credit than generating knowledge. Knowledge and technology are generated by what he calls "stochastic tinkering", rarely by top-down directed research.^[31][32][33]

Approach to models linked to Austrian School

Taleb opposes most economic and grand social science theorizing, which in his view suffer acutely from the problem of Platonicity. In an article titled "The pseudo-science hurting markets",^[34] Taleb called for the cancellation of the Nobel Memorial Prize in Economics, saying that the damage from economic theories can be devastating.In his criticism of models, Taleb has taken a point of view in line with the Austrian School of economic thought. He opposes top-down knowledge as an academic illusion and believes that price formation obeys an organic process.^[35] His paper with Espen Gaarder Haug ^[35] asserts that option pricing is determined in a "heuristic way" by operators, not by a model, and that models are "lecturing birds on how to fly", except that in the case of options, the birds might listen. In the book "Lecturing Birds on Flying: Can Mathematical Theories Destroy the Financial Markets?" Wiley Publishing (2009),^[36] Pablo Triana explores this topic with references to Haug and Taleb and critiques of the Black-Scholes-Merton model.

Ludic fallacy

Taleb's exposition of the Ludic fallacy in The Black Swan

We love the tangible, the confirmation, the palpable, the real, the visible, the concrete, the known, the seen, the vivid, the visual, the social, the embedded, the emotional laden, the salient, the stereotypical, the moving, the theatrical, the romanced, the cosmetic, the official, the scholarly-sounding verbiage (b******t), the pompous Gaussian economist, the mathematicized crap, the pomp, the Academie Française, Harvard Business School, the Nobel Prize, dark business suits with white shirts and Ferragamo ties, the moving discourse, and the lurid. Most of all we favor the narrated.

Alas, we are not manufactured, in our current edition of the human race, to understand abstract matters — we need context. Randomness and uncertainty are abstractions. We respect what has happened, ignoring what could have happened. In other words, we are naturally shallow and superficial — and we do not know it. This is not a psychological problem; it comes from the main property of information. The dark side of the moon is harder to see; beaming light on it costs energy. In the same way, beaming light on the unseen is costly in both computational and mental effort.

Warning of the global banking crisis

In 2007, in The Black Swan^[37]

Globalization creates interlocking fragility, while reducing volatility and giving the appearance of stability. In other words it creates devastating Black Swans. We have never lived before under the threat of a global collapse. Financial Institutions have been merging into a smaller number of very large banks. Almost all banks are interrelated. So the financial ecology is swelling into gigantic, incestuous, bureaucratic banks – when one fails, they all fall. The increased concentration among banks seems to have the effect of making financial crisis less likely, but when they happen they are more global in scale and hit us very hard. We have moved from a diversified ecology of small banks, with varied lending policies, to a more homogeneous framework of firms that all resemble one another. True, we now have fewer failures, but when they occur ....I shiver at the thought.

The government-sponsored institution Fannie Mae, when I look at its risks, seems to be sitting on a barrel of dynamite, vulnerable to the slightest hiccup. But not to worry: their large staff of scientists deem these events "unlikely".

Success during the 2007-2008 financial crisis

Taleb appeared to be vindicated against statisticians in 2008, as he reportedly made a multi-million dollar fortune during the financial crisis of 2007–2008, a crisis which he attributed to the failure of statistical methods in finance.^[38][39] Universa, a fund which is based on the "Black Swan" idea and to whom Taleb is a principal adviser, made returns of 65% to 115% in October 2008 in its approximately $2 billion “Black Swan Protection Protocol.” ^[40]

Taleb's financial success coupled with his earlier predictions have seen him catapulted to prominence. He has appeared on numerous magazine covers and television shows to discuss his views ^[41][41] Taleb started being treated as a "rock star" in Davos 2009 in which he had harsh words for bankers.^[42][43]

In an article in The Times, Bryan Appleyard described Taleb as "now the hottest thinker in the world".^[44] The Nobel Laureate Daniel Kahneman proposed the inclusion of Taleb's name among the world's top intellectuals, citing "Taleb has changed the way many people think about uncertainty, particularly in the financial markets. His book, The Black Swan, is an original and audacious analysis of the ways in which humans try to make sense of unexpected events." ^[45]

In the wake of the economic crisis that started in 2008, Taleb became an activist for a "Black Swan robust society".^[46][47]

Living in a world we do not understand

Recently, Taleb sees his main challenge in mapping his idea of "robustification", i.e., how to live and act in a world we do not understand, and build robustness to Black Swan events. Taleb introduced the idea of the "Fourth Quadrant". One of its applications is in his definition of the most effective investment strategy: what he calls the 'barbell' strategy. Investing money in 'medium risk' investments is pointless because risk is difficult if not impossible to compute. As such, his preferred strategy is to be both hyper-conservative and hyper-aggressive at the same time. For example, an investor might put 80-90% of their money in extremely safe instruments, such as treasury bills, with the remainder going into highly risky and diversified speculative bets. An alternative suggestion is to engage in highly speculative bets, but insured against losses of more than a floor of, for example, 15%. Taleb asserts that by adopting these strategies the investor/speculator can be "robust", i.e., gain a positive exposure to Black Swans, while limiting any losses suffered by such random events.^[48]

Elsewhere, Taleb seems to recommend a similar barbell-style strategy regarding health and exercise, which is instead of doing steady exercise daily, better to do low effort exercise most of the time (walking), while doing extremely strong effort for short sessions periodically. This is related to the idea that the body evolved to live in a random environment, with various unexpected efforts and much rest. [10]

Criticism

Taleb's aggressive attitude against the finance industry has led to a plethora of personal attacks including a smear campaign and death threats from former employees of Lehman Brothers.^[49] His contention that statisticians can be pseudoscientists when it comes to financial risks and risks of blowups, masking their incompetence with complicated equations, has attracted criticism from some statisticians.

According to Taleb, so far no direct published criticism has been directed at his ideas, rather at his person and style.^[50] The American Statistical Association devoted the August 2007 issue of The American Statistician to The Black Swan, in which statisticians offered a mixture of praise and criticism for Taleb's main points, mostly focused on Taleb's writing style and Taleb's representation of the statistical literature. Robert Lund writes that Taleb in Black Swan is "reckless at times and subject to grandiose overstatements; the professional statistician will find the book ubiquitously naive."^[51] Aaron Brown opines that "the book reads as if Taleb has never heard of nonparametric methods, data analysis, visualization tools or robust estimation,"^[52] although he also calls the book "essential reading" and urges statisticians to overlook the insults to get the "important philosophic and mathematical truths." Westfall and Hilbe (2007), while praising the book, complain that Taleb's criticism is "often-unfounded and sometimes outrageous."^[53] Taleb's contentious style draws comments such as, "with few exceptions, the writers and professionals [Taleb] describes are knaves or fools, mostly fools. His writing is full of irrelevances, asides and colloquialisms, reading like the conversation of a raconteur rather than a tightly argued thesis.".^[53] Taleb reacted by blaming the academics for "bad faith" by targeting a literary book that claimed to be a literary book and ignoring the empirical evidence provided in his appendix and more technical works. ^[50]

The late Berkeley statistician David Freedman said that efforts by statisticians to refute Taleb's point that rare events with major consequences are poorly dealt with by conventional statistics had been unconvincing.^[54]

In an interview on Charlie Rose, Taleb said that he was pleased that none of the criticism he received for The Black Swan had any substance as it was either unintelligent or ad hominem/style over substance, which convinced him to "go for the jugular" with a huge financial bet on the breakdown of statistical methods in finance.^[55]

Taleb and nobel laureate Myron Scholes have traded personal attacks. Taleb said that Scholes is responsible to the financial crises of 2008, and suggested that "This guy should be in a retirement home doing Sudoku, His funds have blown up twice. He shouldn't be allowed in Washington to lecture anyone on risk"^[47] Scholes retorted that Taleb simply "popularises ideas and is making money selling books". Scholes also claimed that Taleb does not cite previous literature, and for this reason Taleb is not taken seriously in academia.^[56] Listing his academic works on the topics in "The Black Swan" Taleb said that "Academics should comment on data there not make technical comments on a literary [emphasis] book" ^[50]

Bibliography

Literary and Nontechnical Books

• Taleb, Nassim Nicholas (2001/2005). Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets. New York: Random House. ISBN 0-8129-7521-9. 
• Taleb, Nassim Nicholas (2005). Le Hasard Sauvage. Paris: Les Belles Lettres. ISBN 2-251-44297-9.  The French edition of Fooled by Randomness with revisions and changes to the English version.
• Taleb, Nassim Nicholas (2007). The Black Swan: The Impact of the Highly Improbable. New York: Random House. ISBN 978-1-4000-6351-2. 

Scholarly and technical publications

• Taleb, Nassim Nicholas (1997). Dynamic Hedging: Managing Vanilla and Exotic Options. New York: John Wiley & Sons. ISBN 0-471-15280-3. 
• Taleb, N. N. (2004) Bleed or Blowup: What Does Empirical Psychology Tell Us About the Preference For Negative Skewness? , Journal of Behavioral Finance, 5
• Taleb, N. N. (2004) “These Extreme Exceptions of Commodity Derivatives.” in Helyette German, Commodities and Commodity Derivatives. New York: Wiley.
• Taleb, N. N. (2004) “Roots of Unfairness.” Literary Research/Recherche littéraire. 21(41-42): 241-254.^[57]
• Taleb, N. N. (2004) “On Skewness in Investment Choices.” Greenwich Rountable Quarterly 2.
• Taleb, N. N. (2004) "I problemi epistemologici del risk management " in: Daniele Pace (a cura di) "Economia del rischio. Antologia di scritti su rischio e decisione economica", Giuffrè, Milano
• Taleb, N. N. (2005) "Fat Tails, Asymmetric Knowledge, and Decision making: Essay in Honor of Benoit Mandelbrot's 80th Birthday." Technical paper series, Willmott (March): 56-59.
• Derman, E. and Taleb, N.N. (2005) The Illusion of Dynamic Replication, Quantitative Finance, vol. 5, 4
• Taleb, N. N. (2006) "Homo Ludens and homo Economicus." Foreword to Aaron Brown's The Poker Face of Wall Street. New York: Wiley.
• Goldstein, D.G. and Taleb, N.N. (2007) We Don't Quite Know What We Are Talking About When We Talk About Volatility, Journal of Portfolio Management, Summer 2007.
• Taleb, N.N. (2007) "Black Swan and Domains of Statistics", The American Statistician, August 2007, Vol. 61, No. 3
• Taleb N.N.and Pilpel, A. (2007)Epistemology and Risk Management, "Risk and Regulation", 13, Summer 2007
• Taleb, N. N. (2008) Infinite Variance and the Problems of Practice, Complexity, 14(2).
• Taleb, N.N. (in Press), Errors, Robustness, and the Fourth Quadrant, International Journal of Forecasting (forthcoming)
• Haug, E.G. and Taleb, N.N. (2008) Why We Have Never Used the Black-Scholes-Merton Option Pricing Formula, Wilmott
• Taleb, N.N., Golstein, D.G., and Spitznagel, M.,2009, "The Six Mistakes Executives Make in Risk Management", Harvard Business Review , October
• Pilpel, A. and Taleb, N.N., 2009 (in Press), “Beliefs, Decisions, and Probability” , in (eds. T. O' Connor & C. Sandis) A Companion to the Philosophy of Action (Wiley-Blackwell).
• Taleb, N., and Tapiero, C.Too Big to Fail and the Fallacy of Large Institutions (forthcoming)
• Makridakis, S., & Taleb, N., 2009, "Decision making and planning under low levels of predictability", International Journal of Forecasting (in press)
• Mandelbrot, B. and Taleb, N.N. (in Press). Random Jump, not Random Walk. In Francis Diebold and Richard Herring (Eds.), The Known, the Unknown, and the Unknowable, Princeton University Press
• Taleb, N.N., 2010 Common Errors in the Interpretation of the Ideas of The Black Swan and Associated Papers,Critical Review, Vol 21, No 4
• Taleb, N., and Tapiero, C.The Risk Externalities of Too Big to Fail (forthcoming)

Other essays

• Taleb, N. N. (2005) Edge article: The Opiates of the Middle Class
• Taleb, N. N. (2006) "On Forecasting." In John Brokman, ed., In What We Believe But Cannot Prove: Today's Leading Thinkers on Science and the Age of Certainty. New York: Harper Perennial.
• Taleb, N.N. (2008) Edge article: Real Life is Not a Casino, forthcoming in In John Brokman, ed., Edge Question 2008. New York:Harper Perennial. The article explains Taleb's position on global warming and why we need to be green regardless of models.
• Taleb, N.N. (2009) Edge article: The Idea of Iatrogenic Science, forthcoming in In John Brokman, ed., Edge Question 2009. New York: Harper Perennial.

Collaborations

• Taleb is collaborating with Benoit Mandelbrot on a general theory of risk management.^[58]
• Taleb also works with Daniel Goldstein on a project to test empirically people's intuitions about ecological and high impact uncertainty.^[59]

Honors

• Inducted into the Derivatives Hall of Fame in February 2001.^[60]
• Selected for the Power 30 in Business by SmartMoney in October 2007.
• 2007 getAbstract International Book Award.
• 2008 Frost & Sullivan Visionary of the Year Award.^[61]
• 2008 Prospect Magazine Long list for Public Intellectual of the Year.^[62]
• 2009 Made the Forbes Magazine list of "Most Influential Management Gurus".^[63]

Quotations

• "My major hobby is teasing people who take themselves and the quality of their knowledge too seriously and those who don’t have the guts to sometimes say: 'I don’t know...."^[64]

See also

• Taleb distribution
• Applications of randomness
• List of American philosophers

References

External links

• Nassim Taleb's home page
• Nassim Nicholas Taleb on Twitter
• Taleb on Black Swans Podcast interview with Nassim Taleb at EconTalk
• Econtalk presenting Taleb's Austrian economics point of view about the crisis.
• Radio interview on Philosophy Talk
• finance blog
• FrankVoisin.com – Summary and Review of Fooled By Randomness
• Nassim Nicholas Taleb: the prophet of boom and doom – Profile from The Sunday Times by Bryan Appleyard
• [11] Lecture on Philosophy of Probability at Princeton University

From Wikiquote

While in theory randomness is an intrinsic property, in practice, randomness is incomplete information.

Nassim Nicholas Taleb (born 1960) is a essayist, epistemologist, researcher, and former practitioner of mathematical finance.

Sourced

• My major hobby is teasing people who take themselves and the quality of their knowledge too seriously and those who don’t have the guts to sometimes say: I don’t know....
  • Nassim Nicholas Taleb's Home Page

• You may not be able to change the world but can at least get some entertainment & make a living out of the epistemic arrogance of the human race.
  • Nassim Nicholas Taleb's Home Page

• It is now the scientific consensus that our risk-avoidance mechanism is not mediated by the cognitive modules of our brain, but rather by the emotional ones. This may have made us fit for the Pleistocene era. Our risk machinery is designed to run away from tigers; it is not designed for the information-laden modern world.
  • Quoted in the introduction to "A Talk with Nassim Nicholas Taleb," Edge (April 2004) [1]

• Much of the research into humans' risk-avoidance machinery shows that it is antiquated and unfit for the modern world; it is made to counter repeatable attacks and learn from specifics. If someone narrowly escapes being eaten by a tiger in a certain cave, then he learns to avoid that cave.
  • "Learning to Expect the Unexpected," The New York Times (2004-04-08}

• We should reward people, not ridicule them, for thinking the impossible.
  • "Learning to Expect the Unexpected," The New York Times (2004-04-08}

Fooled by Randomness (2001)

• It does not matter how frequently something succeeds if failure is too costly to bear.

• Unlike a well-defined, precise game like Russian roulette, where the risks are visible to anyone capable of multiplying and dividing by six, one does not observe the barrel of reality.

• A mistake is not something to be determined after the fact, but in the light of the information until that point.

• I always remind myself that what one observes is at best a combination of variance and returns, not just returns.

• I try to make money infrequently, as infrequently as possible simply because I believe that rare events are not fairly valued, and that the rarer the event, the more undervalued it will be in price.

• The more data we have, the more likely we are to drown in it.

• At no point during his ordeal did Nero think of himself as 72% alive and 28% dead.

• Probability is not about the odds, but about the belief in the existence of an alternative outcome, cause, or motive.

• We favor the visible, the embedded, the personal, the narrated, and the tangible; we scorn the abstract.

The Black Swan: The Impact of the Highly Improbable (2007)

Random House, 2008, ISBN 0-81297-918-4

• I disagree with the followers of Marx and those of Adam Smith: the reason free markets work is because they allow people to be lucky, thanks to aggressive trial and error, not by giving rewards or "incentives" for skill.
  • p. xxi

• History is opaque. You see what comes out, not the script that produces events, [...] The generator of historical events is different from the events themselves, much as the minds of the gods cannot be read just by witnessing their deeds.
  • p. 8

• Consider that the turkey's experience may have, rather than no value, a negative value. It learned from observation, as we are all advised to do (hey, after all, this is what is believed to be the scientific method). Its confidence increased as the number of friendly feedings grew, and it felt increasingly safe even though the slaughter was more and more imminent. Consider that the feeling of safety reached its maximum when the risk was at the highest!
  • pp. 40–41 (Taleb attributes the parable of the turkey to Bertrand Russell, who originally wrote of a chicken.)

• The casino is the only human venture I know where the probabilities are known, Gaussian (i.e., bell-curve), and almost computable.
  • p. 127

• Probability is a liberal art; it is a child of skepticism, not a tool for people with calculators on their belts to satisfy their desire to produce fancy calculations and certainties.
  • p. 128

• Cumulative errors depend largely on the big surprises, the big opportunities. Not only do economic, financial, and political predictors miss them, but they are quite ashamed to say anything outlandish to their clients — and yet events, it turns out, are almost always outlandish.
  • p. 149

• Don't cross a river if it is four feet deep on average.
  • p. 161

• Forecasting by bureaucrats tends to be used for anxiety relief rather than for adequate policy making.
  • p. 162

• The same past data can confirm a theory and its exact opposite! If you survive until tomorrow, it could mean that either a) you are more likely to be immortal or b) that you are closer to death.
  • p. 185

• While in theory randomness is an intrinsic property, in practice, randomness is incomplete information.
  • p. 198

• Rank beliefs not according to their plausibility but by the harm they may cause.
  • p. 203

• This makes living in big cities invaluable because you increase the odds of serendipitous encounters — you gain exposure to the envelope of serendipity.
  • p. 209

• Globalization creates interlocking fragility, while reducing volatility and giving the appearance of stability. In other words it creates devastating Black Swans. We have never lived before under the threat of a global collapse. Financial Institutions have been merging into a smaller number of very large banks. Almost all banks are interrelated. So the financial ecology is swelling into gigantic, incestuous, bureaucratic banks — when one fails, they all fall. The increased concentration among banks seems to have the effect of making financial crisis less likely, but when they happen they are more global in scale and hit us very hard. We have moved from a diversified ecology of small banks, with varied lending policies, to a more homogeneous framework of firms that all resemble one another. True, we now have fewer failures, but when they occur... I shiver at the thought.
  • pp. 225-226

Ten principles for a Black Swan-proof world (2009)

Article published in Financial Times (2009-04-07). Article here.

• The economics establishment (universities, regulators, central bankers, government officials, various organisations staffed with economists) lost its legitimacy with the failure of the system. It is irresponsible and foolish to put our trust in the ability of such experts to get us out of this mess. Instead, find the smart people whose hands are clean.

• It is the asymmetry of the bonus system that got us here. No incentives without disincentives: capitalism is about rewards and punishments, not just rewards.

• Only Ponzi schemes should depend on confidence. Governments should never need to “restore confidence.” Cascading rumours are a product of complex systems. Governments cannot stop the rumours. Simply, we need to be in a position to shrug off rumours, be robust in the face of them.

• Using leverage to cure the problems of too much leverage is not homeopathy, it is denial. The debt crisis is not a temporary problem, it is a structural one. We need rehab.

• Economic life should be definancialised. We should learn not to use markets as storehouses of value: they do not harbour the certainties that normal citizens require. Citizens should experience anxiety about their own businesses (which they control), not their investments (which they do not control).

External links

Wikipedia has an article about:

Nassim Nicholas Taleb

• Nassim Taleb's home page
• New Scientist Profile
• Edge article: The Opiates of the Middle Class
• "Blowing Up: How Nassim Taleb turned the inevitability of disaster into an investment strategy" by Malcolm Gladwell, in The New Yorker
• Taleb on Black Swans - podcast interview with Nassim Taleb at EconTalk
• "The Pseudo-science hurting markets" in Financial Times - Taleb calls for the cancellation of the economics Nobel prize
• Radio interview on Philosophy Talk
• Frost Over The World Interview