http://rs.resalliance.org/2007/04/07/black-swans-expecting-the-unexpected/ coping with ecological suprise in a human dominated world Tue, 07 Oct 2008 10:36:45 +0000 http://wordpress.org/?v=2.5.1 http://rs.resalliance.org/2007/04/07/black-swans-expecting-the-unexpected/#comment-83507 Taleb on the failures of financial economics at Resilience Science Sat, 27 Oct 2007 20:57:15 +0000 http://rs.resalliance.org/2007/04/07/black-swans-expecting-the-unexpected/#comment-83507 [...] Nassim Nicholas Taleb writes in Financial Times that because financial economics focus on normal and marginal behaviour at the expense of shocks and market reorganizations it is a pseudo-science hurting markets: I was a trader and risk manager for almost 20 years (before experiencing battle fatigue). There is no way my and my colleagues’ accumulated knowledge of market risks can be passed on to the next generation. Business schools block the transmission of our practical know-how and empirical tricks and the knowledge dies with us. We learn from crisis to crisis that MPT [modern portfolio theory] has the empirical and scientific validity of astrology (without the aesthetics), yet the lessons are ignored in what is taught to 150,000 business school students worldwide. Academic economists are no more self-serving than other professions. You should blame those in the real world who give them the means to be taken seriously: those awarding that “Nobel” prize. In 1990 William Sharpe and Harry Markowitz won the prize three years after the stock market crash of 1987, an event that, if anything, completely demolished the laureates’ ideas on portfolio construction. Further, the crash of 1987 was no exception: the great mathematical scientist Benoît Mandelbrot showed in the 1960s that these wild variations play a cumulative role in markets – they are “unexpected” only by the fools of economic theories. [...] [...] Nassim Nicholas Taleb writes in Financial Times that because financial economics focus on normal and marginal behaviour at the expense of shocks and market reorganizations it is a pseudo-science hurting markets: I was a trader and risk manager for almost 20 years (before experiencing battle fatigue). There is no way my and my colleagues’ accumulated knowledge of market risks can be passed on to the next generation. Business schools block the transmission of our practical know-how and empirical tricks and the knowledge dies with us. We learn from crisis to crisis that MPT [modern portfolio theory] has the empirical and scientific validity of astrology (without the aesthetics), yet the lessons are ignored in what is taught to 150,000 business school students worldwide. Academic economists are no more self-serving than other professions. You should blame those in the real world who give them the means to be taken seriously: those awarding that “Nobel” prize. In 1990 William Sharpe and Harry Markowitz won the prize three years after the stock market crash of 1987, an event that, if anything, completely demolished the laureates’ ideas on portfolio construction. Further, the crash of 1987 was no exception: the great mathematical scientist Benoît Mandelbrot showed in the 1960s that these wild variations play a cumulative role in markets – they are “unexpected” only by the fools of economic theories. [...]

]]> http://rs.resalliance.org/2007/04/07/black-swans-expecting-the-unexpected/#comment-31813 Katherine Harake Fri, 18 May 2007 08:41:42 +0000 http://rs.resalliance.org/2007/04/07/black-swans-expecting-the-unexpected/#comment-31813 Having a trading strategy based on the Black Swan theory sounds like a strategy for eternal pessimists who believe in a world where man and nature will break the rules to the disadvantage of global markets. On the other hand quantitative investors try to remain objective while investors like Buffett and Mobius are optimists who believe in the intrinsic positive value of certain nations and companies. In the real world optimists live longer. I am curious which investment strategy will outlive the other two in the long run. Having a trading strategy based on the Black Swan theory sounds like a strategy for eternal pessimists who believe in a world where man and nature will break the rules to the disadvantage of global markets. On the other hand quantitative investors try to remain objective while investors like Buffett and Mobius are optimists who believe in the intrinsic positive value of certain nations and companies. In the real world optimists live longer. I am curious which investment strategy will outlive the other two in the long run.

]]> http://rs.resalliance.org/2007/04/07/black-swans-expecting-the-unexpected/#comment-22603 Gelman’s notes on Black Swans at Resilience Science Tue, 17 Apr 2007 09:43:12 +0000 http://rs.resalliance.org/2007/04/07/black-swans-expecting-the-unexpected/#comment-22603 [...] Bayesian statistician Andrew Gelman writes his notes on Nassim Taleb’s book the Black Swan: As I noted earlier, reading the book with pen in hand jogged loose various thoughts. . . . The [...] [...] Bayesian statistician Andrew Gelman writes his notes on Nassim Taleb’s book the Black Swan: As I noted earlier, reading the book with pen in hand jogged loose various thoughts. . . . The [...]

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