Nassim Taleb

Focus On The Consequences And Not On The Probability

An investigation of opacity, luck, uncertainty, probability, human error, risk, and decision making when we don’t understand the world.



Nassim Taleb - Overview

Nassim Taleb is the author of the INCERTO a philosophical and practical essay on uncertainty that comprises 5 books: "Skin In the Game", "Antifragile", "The Black Swan", "Fooled by Randomness", and "The Bed of Procrustes".



    Nassim Taleb describes his work as: "...an investigation of opacity, luck, uncertainty, probability, human error, risk, and decision making when we don’t understand the world"


Our world is full of chance and the unknown and the  broader canvas of Taleb's work is all about alerting us to the level of uncertainty and unpredictability of life whilst offering us practical ideas and strategies to enable us to survive and even prosper in these conditions.

He teaches us how to avoid crossing the street blindfolded as he urges us to follow the main rule of living with uncertainty:

  • To learn to perceive it as it really is - and not to delude ourselves into seeing it in the manner that makes us feel most comfortable.
  • To make decisions that focus on the consequences - which you can know - and not on the probability of an event - which you cannot know.



    NASSIM TALEB - MAJOR THEMES


    1. We like to think of the world in simple and predictable models. While this works much of the time, there are rare and seemingly unexpected fat tail events, known as black swans.
    2. Because our standard models don’t take black swans into account, hidden risk looms behind seemingly safe and predictable events.
    3. Rather than maximizing gains during non-black-swan times, survival depends on the ability to weather black swans. Think of an asset portfolio that holds value during a recession. Contrast this with one optimized to grow during a bear market yet becomes worthless during a recession.
    4. The most important ethical principle is skin in the game, not separating risk from reward. Taxpayers bore the entire risk of banking in 2008, while only bankers reaped the profits.
    5. Antifragility, the ability to become stronger in the midst of chaos and unpredictability, is even better than resiliency during a black swan event.
    6. The Lindy effect informs us as to what is antifragile: the world is inherently conservative, things that have survived thousands of years are more likely to be antifragile than something new.





    Authorised Biography

    "Nassim Nicolas Taleb spent 21 years as a risk taker (quantitative  trader) before becoming a researcher in philosophical, mathematical and (mostly) practical problems with probability. 


    Taleb is the author of a multi-volume essay, the Incerto comprising the 4 books: The Black Swan, Fooled by Randomness, Antifragile, and Skin in the Game covering broad facets of uncertainty. It has been published  into 43 languages.

    In addition to his trader life, Taleb has also written, as a backup of the Incerto, more than 50 scholarly papers in mathematical statistics, genetics, quantitative finance, statistical physics, philosophy, ethics, economics, & international affairs, around the notion of risk and probability  (grouped in the Technical Incerto).

    Taleb is currently Distinguished Professor of Risk Engineering at NYU's Tandon School of Engineering (only a quarter time position) [and, finance related bio only: scientific advisor for Universa Investments]. His current focus is on the properties of systems that can handle disorder ("antifragile").

    Taleb refuses all honors and anything that "turns knowledge into a spectator sport"."








Nassim Taleb - Praise and Criticism

The intellectual establishment, which includes the influential news media, rewarded him by declaring him one of the most important thinkers in the world.

"The new sage. The trader turned author has emerged as the guru of the global Financial meltdown. Not only is he riding high in the bestseller lists, his theory of black swan events has become the most seductive guide to our uncertain times."

The Observer


"A giant of Mediterranean thought. Now the hottest thinker in the world"

London Times


"Taleb not only had an explanation for [the crisis], he saw it coming"

The New York Times


"Now hailed as a seer"

The Economist


Taleb is rude and arrogant in his criticisms of those who disagree with him and he indulges in loud and abrasive slanging matches with his opponents on twitter.

He has been described as an intellectual asset gone rogue:

"...over the years it has become evident that he wishes to take down the entire intellectual world, or at least that part which he does not agree with or which has slighted him in some way.

He has said repeatedly that professionals like economists, historians and psychologists are frauds. And columnists too. Taleb finds the word “scientist" in “social scientist" hilarious.

Only Sam Harris, a neuroscientist and a popular author and podcaster, whom Taleb once called an “imposter", has demonstrated the ability to match Taleb’s venom:

“This guy is just insufferable. I’ve actually never witnessed a marriage of incompetence and confidence so fully and grotesquely consummated in the mind of a person with a public platform."

When commenting on this in a public address to Google employees Nasim Taleb said that that this is his way of putting his skin in the game and that if those he insults don't like it they can sue him.









Nassim Taleb - Themes of His 4 Main Books


Fooled By Randomness



    Fooled By Randomness explains how luck, uncertainty, probability, human error, risk, and decision-making work together to influence our actions, set against the backdrop of business and specifically, investing, to uncover how much bigger the role of chance in our lives is, than we usually make it out to be.


    Key Takeaways:

    1] Life is non-linear, which makes the rewards of continued effort disproportionately big, but because progress on the extra mile isn’t clearly visible, most people give up too early.

    2] We need our irrational emotions to be able to decide. If we were to make every single one of our decisions based on rational reasoning, we would cease to exist, because some choices really are indifferent – neither outcome will make us better or worse off. Our emotions are the metaphorical coin flip.

    3] Enjoy randomness when it’s harmless and use stoicism to deflect it when it’s harmful.



Nassim Taleb:

  • Our minds are not quite designed to understand how the world works, but, rather, to get out of trouble rapidly and have progeny. If they were made for us to understand things, then we would have a machine in it that would run the past history as in a VCR, with a correct chronology, and it would slow us down so much that we would have trouble operating.”
  • “A mistake is not something to be determined after the fact, but in the light of the information until that point."
  • "Nobody accepts randomness in their successes, only their failures.
  • “The public person most visibly endowed with such a trait is George Soros. One of his strengths is that he revises his opinion rather rapidly, without the slightest embarrassment…"
  • "What characterizes real speculators like Soros from the rest is that their activities are devoid of path dependence. They are totally free from their past actions. Every day is a clean slate.”
  • “My lesson from Soros is to start every meeting at my boutique by convincing everyone that we are a bunch of idiots who know nothing and are mistake-prone, but happen to be endowed with the rare privilege of knowing it.”







The Black Swan



    The Black Swan explains why we are so bad at predicting the future, and how unlikely events dramatically change our lives if they do happen, as well as what you can do to become better at expecting the unexpected.


    Key Takeaways:

    1] Because Black Swans are always unexpected, they dramatically change the world of those, who are not prepared for them.

    2] Never try to explain the future by looking at your past, it’s a bad indicator.

    3] If you try to gauge real-world risk like you would in a game of cards, you’ll likely make bad decisions.



Nassim Taleb:

  • “The strategy for the discoverers and entrepreneurs is to rely less on top-down planning and focus on maximum tinkering and recognizing opportunities when they present themselves. So 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. The strategy is, then, to tinker as much as possible and try to collect as many positive Black Swan opportunities as you can.”
  • “In general, positive Black Swans take time to show their effect while negative ones happen very quickly— it is much easier and much faster to destroy than to build.”
  • "As you give someone more info, the more they will refine and create predictions, and the more wrong they will end up being. They will interpret random noise as valuable data."
  • “Sir Francis Bacon commented that the most important advances are the least predictable ones, those “lying out of the path of the imagination.”
  • “Consider a turkey that is fed every day. Every single feeding will firm up the bird’s belief that it is the general rule of life to be fed every day by friendly members of the human race “looking out for its best interests,” as a politician would say. On the afternoon of the Wednesday before Thanksgiving, something unexpected will happen to the turkey. It will incur a revision of belief.”







Antifragile




    Antifragile reveals how some systems thrive from shocks, volatility and uncertainty, instead of breaking from them, and how you can adapt more antifragile traits yourself to thrive in an uncertain and chaotic world.


    Key Takeaways:

    1] Fragile items break under stress, antifragile items get better from it.

    2] In order for a system to be antifragile, most of its parts must be fragile.

    3] Antifragile systems work, because they build extra capacity when put under stress.


Nassim Taleb:

  • “Some things benefit from shocks; they thrive and grow when exposed to volatility, randomness, disorder, and stressors and love adventure, risk, and uncertainty. Yet, in spite of the ubiquity of the phenomenon, there is no word for the exact opposite of fragile. Let us call it antifragile. Antifragility is beyond resilience or robustness. The resilient resists shocks and stays the same; the antifragile gets better.”
  • “Ancestral life had no homework, no boss, no civil servants, no academic grades, no conversation with the dean, no consultant with an MBA, no table of procedure, no application form, no trip to New Jersey, no grammatical stickler, no conversation with someone boring you: all life was random stimuli and nothing, good or bad, ever felt like work. Dangerous, yes, but boring, never.”
  • “This is the central illusion in life: that randomness is risky, that it is a bad thing— and that eliminating randomness is done by eliminating randomness.”






Skin In The Game




    Skin In The Game is an assessment of asymmetries in human interactions, aimed at helping you understand where and how gaps in uncertainty, risk, knowledge, and fairness emerge, and how to close them.

    Key Takeaways

    1] There is no evolution without skin in the game.

    2] If you have the rewards, you must also get some of the risks, not let others pay the price of your mistakes.

    3] Don’t tell me what you “think,” just tell me what’s in your portfolio.

    4] You will never fully convince someone that he is wrong; only reality can.

    5] Avoid taking advice from someone who gives advice for a living, unless there is a penalty for their advice

    6] If you do not take risks for your opinion, you are nothing.


Nassim Taleb:

  • Rent-seeking is trying to use protective regulations or “rights” to derive income without adding anything to economic activity, not increasing the wealth of others.
  • By definition, what works cannot be irrational; about every single person I know who has chronically failed in business shares that mental block, the failure to realize that if something stupid works (and makes money), it cannot be stupid.
  • Replacing the “natural,” that is age-old, processes that have survived trillions of high-dimensional stressors with something in a “peer-reviewed” journal that may not survive replication or statistical scrutiny is neither science nor good practice.
  • Products or companies that bear the owner’s name convey very valuable messages. They are shouting that they have something to lose.
  • It may not be ethically required, but the most effective, shame-free policy is maximal transparency, even transparency of intentions.
  • Studying individual ants will almost never give us a clear indication of how the ant colony operates. For that, one needs to understand an ant colony as an ant colony, no less, no more, not a collection of ants.
  • It suffices for an intransigent minority—a certain type of intransigent minority—with significant skin in the game (or, better, soul in the game) to reach a minutely small level, say 3 or 4 percent of the total population, for the entire population to have to submit to their preferences.
  • You can define a free person precisely as someone whose fate is not centrally or directly dependent on peer assessment.
  • If your private life conflicts with your intellectual opinion, it cancels your intellectual ideas, not your private life.






Nassim Taleb - Conclusions

The primary purpose of this site is to show you how to cope in tough times, and to provide you with the tools to do this successfully.

The way we do this is by adopting a balanced approach and providing the "toolkit" of information and resources to enable you to do this. I call this approach the "The Balanced Toolkit".

In my view, Nassim Taleb’s books have, for the non-statistically trained lay person such as myself, introduced a whole new dimension to understanding life and added more tools to be included in our toolkit.

My single biggest takeaway is that I need to learn more about statistics and basic mathematics!

The following is a cross-section of key points that have had impact on me. The selection of these points is entirely subjective and I do recommend that you read and familiarise yourself with the work of Nassim Taleb and make your own list.


Key Points To Take Away


  • Life is more random than you think and your ability to navigate it rationally is more limited than you think.
  • Not everything that happens happens for a reason, but everything that survives survives for a reason.
  • We fit the explanation to the events after the fact, as if we knew it at the time. And, we see patterns where there are none – or we see the wrong pattern.
  • Our minds are not quite designed to understand how the world works, but, rather, to get out of trouble rapidly and have progeny.
  • Our natural tendency is to expect incremental steps and incremental changes to have only an incremental impact whereas there can be a non-linear relationship between the steps and their impact and at some unknown and indeterminate point a tipping point is reached and a significant and often unstoppable effect or change takes place.
  • Mild success can be explainable by skills and labour. Wild success is attributable to variance.
  • Nobody accepts randomness in their successes, only their failures.
  • Percentage moves are the size of the media headlines. But, the interpretation is not linear. A 2% move is not twice as significant an event as 1%, it is rather like four to ten times. A 7% move can be several billion times more relevant than a 1% move!
  • It is easier for your brain to detect differences rather than absolutes, hence rich or poor will be in relation to something else.
  • Your attitude toward risks and rewards will vary according to whether you look at your net worth or changes in it.
  • There may be great information in the fact that nothing took place. There are plenty of scientific results that are left out of publications because they are not statistically significant, but nevertheless provide information.


General Observations


  • If you have the rewards, you must also get some of the risks, not let others pay the price of your mistakes.
  • Don’t tell me what you “think,” just tell me what’s in your portfolio.
  • If you do not take risks for your opinion, you are nothing.
  • If your private life conflicts with your intellectual opinion, it cancels your intellectual ideas, not your private life.
  • Mistrust the predictions of experts – they will almost always be trumped by an evidence-based analysis, since they tend to mis-remember the past. They remember their successes and forget their failures.
  • You will never fully convince someone that he is wrong; only reality can.
  • Replacing the “natural,” that is age-old, processes that have survived trillions of high-dimensional stressors with something in a “peer-reviewed” journal that may not survive replication or statistical scrutiny is neither science nor good practice.
  • Studying individual ants will almost never give us a clear indication of how the ant colony operates. For that, one needs to understand an ant colony as an ant colony, no less, no more, not a collection of ants.
  • It suffices for an intransigent minority—a certain type of intransigent minority—with significant skin in the game (or, better, soul in the game) to reach a minutely small level, say 3 or 4 per cent of the total population, for the entire population to have to submit to their preferences.
  • The only definition of rationality that I’ve found that is practically, empirically, and mathematically rigorous is the following: what is rational is that which allows for survival. Anything that hinders one’s survival at an individual, collective, tribal, or general level is, to me, irrational.
  • By definition, what works cannot be irrational; about every single person I know who has chronically failed in business shares that mental block, the failure to realize that if something stupid works (and makes money), it cannot be stupid.
  • What characterizes real speculators like Soros from the rest is that their activities are devoid of path dependence. They are totally free from their past actions. Every day is a clean slate.” [Path dependence is when the decisions made are dependent on previous decisions or experiences made in the past]

 

 




Further Reading:

Black Swans

Antifragile

Living Antifragile

Skin In The Game




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