In Which I Have The Temerity To Disagree With Taleb – More Than Once!!

Nicholas Taleb has a column up in the Financial Times – ‘Ten principles for a Black Swan-proof world

1. What is fragile should break early while it is still small. Agree.

2. No socialisation of losses and privatisation of gains. Agree. No, make that AGREE.

3. People who were driving a school bus blindfolded (and crashed it) should never be given a new bus. Not so sure; people learn from their mistakes, and a “one strike and you’re out” model seems like it would leave a lot of brand-new people driving the bus…

4. Do not let someone making an “incentive” bonus manage a nuclear plant – or your financial risks. Depends on what he incentive bonus is and over what term -if their incentive is tied to my 20-year returns, great!

5. Counter-balance complexity with simplicity. I think this could be better stated as ‘in complex domains, require simple products and in simple domains, allow complex products’

6. Do not give children sticks of dynamite, even if they come with a warning. There’s a place for instruments too complex to easily understand – it’s just not in the center of our financial markets or economy.

7. Only Ponzi schemes should depend on confidence. Bullshit; all economics depends on confidence; when we are confident, our ‘animal spirits’ are high and we are active economically and all benefit. Periodically, we have to clear the deadwood.

8. Do not give an addict more drugs if he has withdrawal pains. Well, that’s good advice in terms of clearing markets – but maybe it’s worth it to manage deleveraging to minimize social damage??

9. Citizens should not depend on financial assets or fallible “expert” advice for their retirement. So – Social Security? Funded by??

10. Make an omelette with the broken eggs. Or, don’t fix broken things with rotten wood – rebuild them. Hmmm. Ground up? All our financial markets are the organically-grown products of markets that have been around for a long time. Perhaps we should deeply modify some features of these markets – but rebuild them de novo??

16 thoughts on “In Which I Have The Temerity To Disagree With Taleb – More Than Once!!”

  1. “8. Do not give an addict more drugs if he has withdrawal pains. Well, that’s good advice in terms of clearing markets – but maybe it’s worth it to manage deleveraging to minimize social damage??”

    The guy knows ZIP, NADA about addiction treatment, withdrawl or for alocoholic DTs can KILL

    Yes you DO give them sometimes depends on individual circumstances a little to ease them into tappering off.

    By this statement he qualifies for membership in

    People who were driving a school bus blindfolded

  2. Dan,

    You’re perhaps a bit too harsh. How about giving Taleb a second chance?

    On the other hand, I don’t care if he is the black-swan guy, writing something that boils down to “prevent the unexpected” maybe isn’t all that profound.

  3. I think Taleb would be the last one to say you can prevent the unexpected.

    Expect the unexpected is a better reading, even if it is a truism. Or, even more aptly- be prepared.

    I’ll add a Douglas Adams quotes to this list:

    _The major difference between a thing that might go wrong and a thing that cannot possibly go wrong is that when a thing that cannot possibly go wrong goes wrong it usually turns out to be impossible to get at and repair._

  4. In my opinion a number eleven should be added for clarity:

    “Dont be the parents who has their toddler son on one of those leash harnesses in public. He’ll grow up to be the boy who shoots everyone at school”

    There, I just prevented another disaster in the making.

  5. My childhood addiction to horror comics created this short list for avoiding financial hell:

    1. Never gamble with borrowed time or money

    2. Don’t build on an Indian burial ground

    3. Don’t bury your mistakes in your own backyard

    4. Don’t sell your soul to the devil

    If you add the old saying, ‘don’t throw good money after bad’, it usually covers most bases

  6. I don’t get his “Item 9”. If people don’t rely on “financial assets” to retire, should they not retire at all? After all, any savings is a financial asset – as is any pension scheme, whether run by the government or not.

    I actually think there’s an open question whether we need to rethink the concept of retirement, particularly as people are living longer and longer, but you’ll obviously need savings when you do retire, and you’ll probably need better returns than bank accounts or physical stores of value are likely to provide.

  7. 3. People who were driving a school bus blindfolded (and crashed it) should never be given a new bus. *Not so sure; people learn from their mistakes,*

    Proust said that, for the most part, people didn’t learn from their mistakes. Rather they continued to witness themselves repating their mistakes until it became their “style”.

    I have found this Proustian take on mistakes to be closer to reality than the learning from mistakes idea. I also think it holds true from the individual level to the level of cultures and civilizations.

  8. Number 7 had me wondering if I should take Taleb seriously at all; it’s been a while since most currencies were based on the gold standard, and even before the world moved on there were plenty of boom-and-bust cycles.

    And then Number 9 implies that the best way to protect your wealth is to bury it in the back yard. Or just never retire.

    Maybe the guy’s a genius, but I do know one financial expert I’m not going to listen to when it comes to managing my money….

  9. _”Not so sure; people learn from their mistakes”_

    More Douglas Adams, the Twain of our times:

    _“Human beings, who are almost unique in having the ability to learn from the experience of others, are also remarkable for their apparent disinclination to do so.”_

    more succinctly:

    _”You live and learn. At any rate, you live.”_

  10. Call me lacking in imagination, but I’m not sure how else to read “Black Swan-proof world” other than as preventing the unanticipated. I suppose my problem could all be the fault of the headline writer, and not Taleb: certainly many of his individual points make perfectly good sense.

  11. For being able to survive the unexpected, economically, I have a different rule. Ensure that a talented young individual, without any inside connections and on the wrong side of any “affirmative action” programs you have, faces the minimum resistance to getting very rich, very fast by productive means.

    (That is, e.g. not by finding a flaw in the regulation of the market and doing some fast, clever looting before retiring to the Bahamas but, e.g. by building a mine, with certainty that it will not be expropriated, or held up with bogus tribal claims till connected locals can seize it, or whatever.)

    If you get out of the way of the talented and ambitious young, they will simply out-shine your problems, including whatever mess you’ve gotten yourself into through an alleged “black swan” problem. Not only will you be aggressive, you’ll be resilient. Perpetual energy is the gift of the young and the hungry outsider.

    But if you tolerate the growth of a culture of political stand-overs and shakedowns and over-regulation and “squeeze bills”, where it’s hard to become anyone anywhere unless properly connected friends of friends and programs that favor selected groups are ushering you in through the club-house door, then every misfortune is like a hammer-blow that falls on a plastic (non-resilient) surface.

    “Safety” obtained through over-regulation – such as excessive requirements for financial reporting – is deeply unsafe.

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