Is Taleb a crank?

http://falkenblog.blogspot.com/2009/03/review-of-talebs-black-swan.html

by kingkongrevenge • 17 years ago

46 29 17 years ago

falkenblog.blogspot.com

jacquesm4• 17 years ago

Is Taleb a crank ? You know what, I don't know.

Is Sam Sethi a nut job ? Also no clue.

Is Dvorak a troll ? Again, it doesn't register, he might be.

What I do know is that "Is X a Y ?" where 'X' is the name of some guy that's in the public eye and Y some hyperbolic term (preferably derogatory) will get immediate traction.

bonsaitree• 17 years ago

It's a really sad commentary on our society, and specifically the HN community, when a headline framed as a question (a no-no in Journalism 101) gets traction. Great response.

sharpn• 17 years ago

I agree the headline does read like that of a fluff piece, but the article is considered, and it does quantify & address the question in the headline. I guess what I'm saying is that if your attention is grabbed by the headline, then you won't be disappointed by the article - in this case.

kingkongrevenge4• 17 years ago

Headlines are supposed to convey the thrust, not nuance. There's no false advertising.

Your basic complaint is that concise and sharp headlines do better than detailed, dull ones? Welcome to humanity.

jacquesm4• 17 years ago

I've decided to put your theory to the test:

http://news.ycombinator.com/item?id=771303

For the record, I think Doug Engelbart is an absolutely amazing visionary and a person to who we all owe more than we probably are aware of.

akronim• 17 years ago

Taleb's strategy gets paraphrased as "buy out of the money puts" but I'm sure there's quite a bit more going on than that at his funds, even if that's broadly the strategy. For starters you have to figure out which puts to buy. It almost certainly isn't about buying puts on the main index, since that's almost a default no-thinking risk management approach which drives the price of the puts up.

joe_the_user4• 17 years ago

The author covers the topic in considerable depth but fails to understand the key points.

Mandlebrot makes serious criticisms of the standard models of stock and other valuations - these boil down to saying that the "tails" of market changes are going to be larger than the current models.

The simplest example is CDO's. If you believe in short-tailed, uncorrelated stock market changes, you can argue that the stocks of five different tripple-A rated major corporations have a zero percent chance of simultaneously declining. And you similarly combine together even poor quality bonds to create a "synthetic" bond which also supposedly has a nearly 0% chance of failure.

If you believe in long-tailed, correlated stockmarket changes, you believe that the chances of such bonds failing is much higher.

Guess what actually happened?

I would criticize Taleb, however, for not bringing the issue of complex random processes to the fore. I think he wants to make his ideas very accessible but the problem is that he looses the key difference between short-tailed and long-tailed distributions, since short-tailed distributions DO exist in reality, especially physics and so we're not talking generic randomness when looking the problems of understanding markets and uncertainty.

kingkongrevenge4• 17 years ago

> saying that the "tails" of market changes are going to be larger than the current models

The claim is that people using the models are well aware that the gaussian distribution is only an approximation, and that substituting fatter tailed distributions into the models don't actually affect the outputs very much.

joe_the_user4• 17 years ago

Yes, I know that's been claimed.

Do you think that, perhaps, the massive collapse of the financial system in the past year might at least cast a bit of doubt on whether that "awareness" translates effectively to behavior?

rortian• 17 years ago

This is a not a very solid claim. The difference in calculations using a distribution with a finite variance versus one with an infinite variance could not be more different.

The approximation is not done for closeness, because they are not close at all, but for convenience and simplicity. Probability theory is amazingly difficult when you are dealing with infinite variance.

lutorm3• 17 years ago

the problem is that he looses the key difference between short-tailed and long-tailed distributions

Isn't this basically what the entire "Black Swan" book is about? The difference between what he calls "Mediocristan" and "Extremistan", and that physical reality is in Mediocristan, is the basic concept he starts out with.

david9272• 17 years ago

It's Falkenstein who is the crank. You can tell he's read Taleb's work with a chip on his shoulder (as many have). Taleb's not saying "shit happens," he's saying, "you can't measure risk -- ever." You can approximate portions, like VaR and bond rating agencies, but we've been way too cocky that our measurements cover it all.

I think allegations of "crank"-ness were discussed until about a year ago. September vetted him. End of story.

kingkongrevenge4• 17 years ago

He's saying that Taleb's points are not very useful or original.

david9272• 17 years ago

I know. I read it. My point was that he thinks that because he thinks that Taleb is simply saying 'shit happens'. He's not. We believed in the Gaussian curves and risk measured in standard derivations. We believed VaR and it ate us for lunch. If it's not very useful or original, September would not have proved him out so well.

joe_the_user4• 17 years ago

Falkenstein has a weird outlook. It seems to mostly involves seeing those things that are well-liked by wallstreet as successes and anything else as failures - Mandlebrot is thus failure since he hasn't sold his models as a product to wallstreet.

In another post on his blog, he describes the financial regulation of the market 1930-1970 as a "failure" based on the rent-extraction which the specialists derived. Never mind the stable growth of the economy during much of that time and the various financial disasters since then.

katamole• 17 years ago

You can tell he's read Taleb's work with a chip on his shoulder (as many have).

Did it occur to you that Taleb's frequently inflammatory tone might have something to do with this?

Rantenki• 17 years ago

The author claims almost immediately that: "Taleb’s style is to severely criticize experts and authorities--lots of 'morons', 'idiots', and 'fools' out there--while implying that both he and his reader or listener are exempt from their many biases."

Actually, Taleb continuously laments how amazingly difficult it is to stay objective and analytical, especially when it comes to assessing risk.

Taleb's key point however, was that existing economic models depend on using Gaussians for modeling probability distributions, but that Gaussians are only useful in SOME cases. Real world behaviorally driven events rarely fit into a neat statistical framework, so don't try and force them to, you'll just get bad results out of your model.

I would recommend reading his fooled by randomness book as well (and I may be remembering details from that one as well in this comment).

jsankey• 17 years ago

Upvoted because I think it's important in this case to read an opposing view. After all, predicting a crash is not in itself confirmation of insight - at any point in time there will be some people making the prediction, so when a crash inevitably happens some people come out looking like geniuses.

As for who is right, frankly that's going to take a lot more digestion...

Devilboy• 17 years ago

Taleb really did predict 7 out of the last 2 recessions.

nir• 17 years ago

I think he'd probably agree - by definition, his theory means that he's no better at predictions than anyone else, and as I understand his investment strategy, he positions himself so that being right once in a while covers the losses of being wrong the rest of the time.

bowman• 17 years ago

I have to say, at least Taleb can write. Reading this scrawl gave me a headache.

bwd2• 17 years ago

I kind of ran out of steam on the paragraph where he claims that Niederhoffer's strategy is better than Taleb's while failing to mention that Niederhoffer has blown up two separate funds during periods of market instability (1997 and 2007). I find that Niederhoffer's experience reinforces rather than debunks Taleb's arguments.

lutorm3• 17 years ago

Arguing that Taleb is contradicting himself in relying on small number statistics or "anecdotes" doesn't make sense. You only need a sample of one to falsify a theory.

lutorm3• 17 years ago

What does whether he is a "crank" have to do with whether he is wrong? I stopped taking the author seriously when the ad hominem attacks started. Taleb may be a crank, he may be unsympathetic or inflammatory, but that has no bearing whatsoever on the state of his theories.

Is Taleb a crank?

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