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Thread: The Black Swan by Nassim Nicholas Taleb

  1. #1
    Actuary.com - Level III Poster
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    The Black Swan by Nassim Nicholas Taleb

    Anybody else here read The Black Swan by Nassim Nicholas Taleb (click)?

    Quote Originally Posted by Taleb
    For the last 12 years, I have been telling anyone who would listen to me that we are taking huge risks and massive exposure to rare events. I isolated some areas in which people make bogus claims --epistemologically unsound. The Black Swan is a philosophy book (epistemology, philosophy of history & philosophy of science), but I used banks as a particularly worrisome case of epistemic arrogance --and the use of "science" to measure the risk of rare events, making society dependent on very spurious measurements. To me a banking crisis --worse than what we have ever seen -- was unavoidable and NOT A BLACK SWAN, just as a drunk and incompetent pilot would eventually crash the plane. And I kept receiving insults for 12 years!

    I read his book during the summer - while I was studying for Exam P (lol). Basically, this guy believes that we are incapable of accurately measuring risk. We being humankind. He is very critical of statisticians, economists, and lots of other professions. He even goes so far as to say the Black-Scholes options pricing formula & related methods are fraudulent.

    If I recall correctly, he never directly criticizes the actuarial profession. But I think he does recommend becoming a doctor or 'doing something good for mankind' instead of working in finance. It's funny because he made a fortune as a quantitative analyst on Wall Street. (I know making a personal fortune isn't doing something good for mankind.)

    Some of his arguments are a bit delicate tho, and I think it may be easy to misinterpret what he is saying. If you have read the book, you may know what I am referring to: I am not sure where Taleb thinks the tools of statistics or mathematics stop working for the actuarial profession. I know he isn't always referring to finance, but clearly the methods that have been developed work for life insurance, property/casualty, pension, etc. No? A couple of my profs at this uni work in mathematical economics/stochastic analysis/options pricing/etc. and I would like to ask them what they think about this guy, but somehow I think that would be a bad idea. :wideyed:

    I am still a student and I have no experience as an actuary, so I may not know what I'm talking about. But I think The Black Swan is well worth the read. Also you might want to check out these videos.

    Taleb and Mandelbrot (click)

    The Future Has Always Been Crazier Than We Thought - this one is long, but sums up the book, I think
    Last edited by Gus Gus; November 9th 2008 at 04:33 PM.
    The freedom to dream meaningfully

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    I watched the longer video and I think I got a good picture of what his points are. They are valid points, though, just as the forecasts and predictions that he speaks of, they should be taken with a grain of salt. All predicted models have limitations and a thorough understanding of these limitations and possible exceptions is just as crucial as the results that they predict.

    As a student, I think it's very important to learn what mathematics can and can't do and to be very careful what conclusions you draw from them. Do not trust mathematics further than you are allowed to but that doesn't mean to abandon all hope in mathematics.

    I'm in P&C and we are constantly trying to work out ways to properly segment the population into appropriate risk groups. Of course, we will never be able to predict the large losses but the aggregate loss behavior on the whole is largely predictable. When doing predictive modeling, we look at loss behavior on many levels and make decisions based on what we see. We fully accept that we can't predict the exact future, but the law of large numbers helps us understand how much risk we are taking on. The insurance industry wouldn't exist without predictive modeling and if it were so unreliable, insurance companies wouldn't be profitable.

    To avoid taking risk because you can't predict the future is unnecessary and perhaps even foolish. At the end, he mentioned that he is only around 7% invested in the stock market. The stock market is not something to be feared, and a man at his age being so minutely invested is simply not maximizing his potential. Now he'll be fine based on his income from his books and his earlier career, but the average person doesn't have that luxury and shouldn't be afraid of trying to grow their wealth in the stock market. Short term investments are extremely volotile but long term growth is almost always possible.

  3. #3
    Actuary.com - Level II Poster Akki's Avatar
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    I recently started reading 'Black Swan', already completed his earlier book 'Fooled By Randomness'. In my opinion he made many valid points in that book although I am not agree on others. One point which is still fresh in my mond is the unability of human mind to make corrections for randomenss in any event like if you are making good money in stock market, you will always attribute it to your investment strategy, people don't realize that market has a cycle & this thing too has a lot of hand in your profit. Sooner or later cycle may get reversed & you may loose money, so you have to always keep in mind that profit should be spread on a longer span.
    Other thing was related to success in ones professional career. Every successful person thinks that he is at this position because of his talent. He will never attribute this to other things like randomness. But if you ask a question from him that why an equally talent person with other required qualities is not as successful as you are then he might not be answer it convincingly.
    In a nutshell, I would suggest people to read this one as well to get a very different perspective. (I read it when I was studying for Exam P):confused-:
    ADVERSITY CAUSE SOME MEN TO BREAK,
    OTHERS TO BREAK RECORDS.:coolman:

  4. #4
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    Quote Originally Posted by ajsnyder85 View Post
    I watched the longer video and I think I got a good picture of what his points are. They are valid points, though, just as the forecasts and predictions that he speaks of, they should be taken with a grain of salt. All predicted models have limitations and a thorough understanding of these limitations and possible exceptions is just as crucial as the results that they predict.

    As a student, I think it's very important to learn what mathematics can and can't do and to be very careful what conclusions you draw from them. Do not trust mathematics further than you are allowed to but that doesn't mean to abandon all hope in mathematics.

    I'm in P&C and we are constantly trying to work out ways to properly segment the population into appropriate risk groups. Of course, we will never be able to predict the large losses but the aggregate loss behavior on the whole is largely predictable. When doing predictive modeling, we look at loss behavior on many levels and make decisions based on what we see. We fully accept that we can't predict the exact future, but the law of large numbers helps us understand how much risk we are taking on. The insurance industry wouldn't exist without predictive modeling and if it were so unreliable, insurance companies wouldn't be profitable.

    To avoid taking risk because you can't predict the future is unnecessary and perhaps even foolish. At the end, he mentioned that he is only around 7% invested in the stock market. The stock market is not something to be feared, and a man at his age being so minutely invested is simply not maximizing his potential. Now he'll be fine based on his income from his books and his earlier career, but the average person doesn't have that luxury and shouldn't be afraid of trying to grow their wealth in the stock market. Short term investments are extremely volotile but long term growth is almost always possible.
    Sorry it's taken me so long to get back to this.

    I re-read his book (it's very, very good and hard to put down).

    I totally agree with your first and second paragraph.

    For your third paragraph, I was reminded by re-reading his book, and you may be interested to know that Taleb implies in his book that "insurance analysts" are experts and not frauds - which is of course true. I presume he means actuaries. I don't think that actuarial science is a fraud, clearly, but I can see how one might think that Taleb is against all use of statistics. The first time I read The Black Swan , I was distracted by the over-the-top nature of some of Taleb's assertions and this lead me to think that he was being critical of all applications of stats. This isn't the case.

    At any rate, good book. Highly recommend it.
    The freedom to dream meaningfully

  5. #5
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    I am reading Fooled by Randomness currently. It has been extremely interesting. Would love to ask math/stat Professors from my school about their opinions too...haha....although I somehow think it's a dangerous idea too......lol

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