Since I’ve read “The Black Swan: The Impact of the Highly Improbable Fragility”, I found Talab’s ideas to be very interesting and practical. I appreciate the fact that he is not ‘only’ an academic scholar that is living in his ivory tower but rather an option trader that bring a lot of ‘street wise’ into his arguments. Here are two recent talks that he made that put some more light on these fascinating subjects: the concepts of antifragility and black swan events and their implications.
Authors@Google Presents: Nassim Taleb
Stanford Seminar – Part of the ETL program
- Antifragile – Any system that benefits from the extreme, rare events or in Talab’s word: “Some things benefit from shocks; they thrive and grow when exposed to volatility, randomness, disorder, and stressors and love adventure, risk, and uncertainty. Yet, in spite of the ubiquity of the phenomenon, there is no word for the exact opposite of fragile. Let us call it antifragile. Antifragility is beyond resilience or robustness. The resilient resists shocks and stays the same; the antifragile gets better”.
- Convexity and it connection with options in the world. Btw, he is not talking here about convexity as a measure of the sensitivity of the duration of a bond to changes in interest rates. But I like the nice trick on ‘how to’ remember it with the smily face.
- Skin in the game and who in the ancient world the engineers slept under the bridge (or house) they built. It’s true that a pro will know better than its inspector how to handle risk.
- Extremistan – a place that is rule by extreme events or in other words, it’s dominated by outliers. This is coming (of course) with compare to Mediocristan. In Mediocristan environments we can safely use Gaussian distribution and think that our probabilities model will work. However, in the real world of extremistan you wish to find the ones who think they can relay on gaussian and trade with them.
- Entrepreneurship – makes many small mistakes and enjoy the (rare) upside event (= the positive black swan).
- A system that is ‘bottom-up’ is much healthier than governed systems. Take a look at Switzerland vs USA.
“…The best test of whether someone is extremely stupid (or extremely wise) is whether financial and political news makes sense to him.”