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Black Swans And The Nonsense Of Nassim Taleb
By Lee Kachroo on December 15, 2008 | More Posts By Lee Kachroo | Author's Website
Would-be philosophers with just a little bit of knowledge are dangerous; when they are good at something, like making money, they are even more dangerous. We love to listen to the successful money man, after all, who wants to listen to the inventor of the toaster oven or microwave oven or TV or DVDs. Even Gates is boring as a speaker.
“Black Swan” is an event which would not fall within the constructs of theoretical models that attempt to quantify the likely course of the future. Taleb has classified the events occuring in financial markets post 2007 as a Black Swan event, he thus falls into the same logical trap that most analysts fall into. He is after all a product of the same model.
Effect is often confused for causation by those that attempt to be rigourous philosophers but are really tinkerers. Taleb has given himself the ‘epistemologist of randomness’ description.
Epistemology is the branch of philosophy that studies the nature and means of human knowledge. What the heck is an ‘epistemologist of randomness’? That is worse than Kant’s ‘there is no reality’ nonsense.
The fact of our crises and the nonsense of Taleb’s logic is apparent when you realize that the ‘Black Swan’ event was the run-up to 2007. The credit build-up, the market hype, the emerging market hype, the globalization hype….this type of bubble or event can only be compared to 1929 or 1873.
The crash that has occurred is the effect, and it is a regular occurrence. Recession, market crash, foreclosures, country bankruptcy - we have all seen this. Since 1970 I can give you a list of at least 10 crash/crises: oil shock, LDC crisis, and on and on. This is the third time Citibank (NYSE:C) has wiped out its capital in 26 years…what ‘Black Swan’ event?
Be wary. As Taleb says do not rely on the past to predict the future, so do not depend on Taleb’s past success to guide you with future forecasts. When a man confuses cause and effect, the rational man smiles and moves on.
The reason for the shock is that we did not realize that we were living through a ‘Black Swan’ time pre-2007. In retrospect it is obvious, as is the subsequent unwinding.
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Bravo! I see a lot of praise for Taleb’s thinking and it’s a bit disspiriting. The truth is a shock is only a shock if you’re not paying attention.