Chris Lau - Seeking Alpha

Sunday, August 23, 2009

Predicting, Forecasting, and Luck (vs. Skill)

Nassim Nicholas Taleb: A Crazier Future

This video found its way via Zerohedge.

Taleb is the author of "Fooled by Randomness" and "The Black Swan." This video summarizes the concepts discussed in his books, in which Taleb comically describes The Black Swan is a re-write of "Fooled by Randomness." (See @1hr 5min)

Most admirably, Taleb (@1hr 15min) reveals how no one wanted to publish his book. Complete with many rejection letters from publishers, the author prevailed by posting his manuscript on the web, gaining attention, and eventually overcoming this set-back.

This video will take 1hr 30min to watch.

In this video, Taleb talks about some of the things we all would want:

  • Predicting the future
  • Illusion of control @46:16
  • Forecasting
  • Moving from Theory to Practice
Some of his Tips:

  • The Best advice comes from those who give you NEGATIVE advice (as opposed to positive advice). (Reference: @57 minutes)
  • Do not use forecasts in a qualitative way or for anxiety relief.
  • Create small Rules of Thumb
  • Do not take advice from people wearing a tie!
  • Respect Tradition and Age (Reference: @1:03)

On Managing Risk:
In the Q&A segment at the 1hr 13min mark, Taleb talks about minimizes risks in the stock market in the maximum way: simply by holding an amount he is willing to lose. For example, he says holding 7% in stock would result in a maximum loss of 7%.

On Applying "Black Swan" to Decision Making
@ the 1hr:22min Taleb is asked:

How does focus on black swans affect quality of decision making? Does it increase paralysis or inaction?

His Response:
(my transcription may have errors)

Being skeptical makes you take more risk in some domains. I take more risks on some domains. If you are aware of black swans, focus your risk taking on some things and not [on] others. This allows you to take more risk in tinkering trial and error, and a lot less risk with when you rely on someone else's opinion who can be full "experts."

Taleb is working on the next book that discusses how we are better at doing things than knowing things. When this book is out, it should make for a very controversial reading from the academic community.