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What is 10 or 20 Trillion US dollars between friends?
December 5, 2008 10:44 AM   Subscribe

Nassim Nicholas Taleb, author of the award-winning book The Black Swan, (previously), was interviewed recently by Charlie Rose: A conversation about economics with Nassim Taleb (as well as Time Magazine.) Taleb is more pessimistic than Nouriel Roubini, (previously, previously) who thinks that the total sum for this current global meltdown may be somewhere between 10-20 Trillion US dollars.
posted by gen (19 comments total) 7 users marked this as a favorite

 
Some who are more seasoned in statistics, economics or finance and the like may think the Black Swan or those who praise it naive. But for now, the Black Swan is on the top of my list of books that permanently changed how I think about world events. Its also very well written. Now to search for a transcript of this interview.
posted by gagglezoomer at 10:49 AM on December 5, 2008


There's a transcript on the Charlie Rose site. Search for "transcript" and click there. It's not linkable.
posted by gen at 10:59 AM on December 5, 2008


Nassim Nicholas Taleb ... epistemologist, polymath, scholar of randomness and knowledge...

I believe this may be the most excellent biographical Wikipedia lede that I have ever seen. Dude should work on getting "ontologist" (in the hardcore sense, not this Semantic Web type of stuff) added.

Also, the transcript is linkable, including professional white background, since I have hax. Second page.
posted by TheOnlyCoolTim at 11:35 AM on December 5, 2008


huh, in what sense is the guy a polymath?
He's basically an applied math guy, right?
posted by atrazine at 12:05 PM on December 5, 2008


THX for transcript!
posted by gagglezoomer at 12:08 PM on December 5, 2008


Seek the black swan, and it will always be around every corner, by definition. The black swan is unpredictable. Beware false prophet.
posted by stbalbach at 1:22 PM on December 5, 2008


Taleb is just insufferable. His Black Swan is slightly less self-enamoured than Fooled by Randomness, but still. My theory is that these trader guys are so immersed in superficiality and bullshit that they need to give themselves airs of old-fashionedness and timeless scholarship to overcome their self-hatred. I'm sure Bourdieu would be able to explain it.
posted by dhoe at 1:42 PM on December 5, 2008 [2 favorites]


The black swan is unpredictable. Beware false prophet.

Beware false positive — but, yes, beware false prophet.
posted by Blazecock Pileon at 2:38 PM on December 5, 2008


Beware false profits.
posted by I Foody at 3:29 PM on December 5, 2008


I just read The Black Swan. Great ideas in it - about two pages worth. Then a lot of masturbatory noodling for hundreds more.
posted by Dee Xtrovert at 3:40 PM on December 5, 2008 [2 favorites]


"the total sum for this current global meltdown may be somewhere between 10-20 Trillion US dollars"

How do terms like these even work in the context of a major economic collapse over several years? It's one thing with the bailouts, we're saying it will "cost" us USD 300 billion at the moment we sign the check.

But it's like if someone was saying that the total sum for the economic meltdown in Zimbabwe was going to be ZWD 100 billion. That would mean a very different thing in 2000 versus today, to the point of being meaningless.

I understand the desire to stick to some sort of objectively measurable terms, but when the system underlying those terms is falling apart then it's more or less pointless, right? What was the total cost of the sinking of the Titanic, measured in deckchairs?
posted by Riki tiki at 4:02 PM on December 5, 2008


>I just read The Black Swan. Great ideas in it - about two pages worth. Then a lot of masturbatory noodling for hundreds more.

Agreed.

a) Weird, even unprecedented stuff happens... and then, well, everything changes.
b) Bet often! On the unlikely! (If you can afford it.)

He's the Philosopher of the Lotto.

I remember being very fond of the book, but in retrospect, it seems like a mood-piece; he's sitting on a veranda overlooking the sea, cigarette in hand, regaling you with tales of The Lebanon That Was-- he stabs in the air with the cigarette, at every opportunity pointedly reminding you that anything you can name is just as fragile and able to suddenly shatter as the Paris of the Middle East...
posted by darth_tedious at 6:01 PM on December 5, 2008


Except everyone was predicting this.

b) Bet often! On the unlikely! (If you can afford it.)

He's the Philosopher of the Lotto.


Right, you could invest in the next Google, and multiply your money by one hundred. Or you could invest small amounts in a hundred startups, 99 fail and one becomes Google. So now you're exactly where you started.
posted by delmoi at 7:08 PM on December 5, 2008


He's the Philosopher of the Lotto.

Right, you could invest in the next Google, and multiply your money by one hundred. Or you could invest small amounts in a hundred startups, 99 fail and one becomes Google. So now you're exactly where you started.


Except that part of the point is that the statistical outlier has a greater than expected impact. So within the context of his thinking, the rare success will make up for the losses and give positive return. He isn't the Philosopher of the Lotto at all. Someone playing the lotto ignores the losses with the expectation that they will be blessed with a winner early on and then quit. Because they hope to get lucky they ignore the expected negative return. Taleb is looking for situations that are the exact opposite of the Lotto, ones where the reward is greater than the given risk. He fully anticipates that he will have to go through many losses before he profits.
posted by BigSky at 9:30 PM on December 5, 2008 [1 favorite]


So within the context of his thinking, the rare success will make up for the losses and give positive return.

Read: Martingale, or "Gambler's Ruin" for more info on this fallacy.
posted by Blazecock Pileon at 11:55 PM on December 5, 2008


The "investing is just gambling" fallacy ignores the basic fact that production and productivity (production divided by population) each improve over time, which generates a predictable positive real return on capital, giving the markets a negative vig over the long time frame -- a casino where the slots are set to pay out $1.03 for every average $1.00 bet.

The real and interesting argument has always been about the opportunity cost of investment: the modest real return versus the utility of consumption.

The lesson of the past 18 months is a corollary one. Because the return potential of investment is modest, bubbles always pop.
posted by MattD at 7:56 AM on December 6, 2008


... the basic fact that ...

This is why economists are dangerous. Economic models and historical data are good, but they're not reality. Don't eat the menu.
posted by anthill at 8:01 AM on December 6, 2008



Blazecock: The Martineau scenario doesn't apply because your return is limited by your outlay. The game is has fixed returns and is exactly that a game. It doesn't apply in real life and thats what were talking about. Leave the Casino at the table.

Delmoi: In terms of return think Microsoft not Google if you had spent $100 on MICRO in 1990 you would have 47000 shares of it, its currently trading just shy of $20 . If Microsoft is that one stock you want to make that bet, if its Cisco, if its Carnival you want to make that bet. You will make money!
posted by Rubbstone at 10:57 AM on December 6, 2008 [1 favorite]


Read: Martingale, or "Gambler's Ruin" for more info on this fallacy.

Uh, no. Martingale refers to a system of betting. The idea is to bet enough so that when a win comes it makes up for all the previous losses. The crucial factor is the size of the bet relative to all the past bets, and the expectation of the bet is pretty much irrelevant.

That bears no resemblance to what I was writing about above, where the expectation is the heart of the matter. The idea is to find an event that the trader has determined will occur, for example, once in every one hundred occasions and which the market has priced incorrectly as occurring once in every five hundred occasions, thus offering 500 to 1 odds on a 100 to 1 bet. No money management was specified, and a Martingale approach would be about as bad a choice possible. Instead, you could divide an account into eight hundred to a thousand units and bet one unit per occasion, or you could bet a fixed fraction of somewhere around half a percentage point.

The basic idea though, is that the win makes up for the losses and puts the account into profit, not because the bet is greater than all the prior losses, but because an overlay has been found due to the market underestimating the frequency of rare events. There is no fallacy here. This is how some traders make money and also why some hedge funds, like LTCM, go bust.
posted by BigSky at 8:02 AM on December 7, 2008 [1 favorite]


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